As 2015 drew to a close, many in the global energy industry were praying that the price of oil would bounce back from the abyss, restoring the petroleum-centric world of the past half-century.
All evidence, however, points to a continuing depression in oil prices in 2016 - one that may, in fact, stretch into the 2020s and beyond. Given the centrality of oil (and oil revenues) in the global power equation, this is bound to translate into a profound shakeup in the political order, with petroleum-producing states from Saudi Arabia to Russia losing both prominence and geopolitical clout.
To put things in perspective, it was not so long ago - in June 2014, to be exact - that Brent crude, the global benchmark for oil, was selling at $115 per barrel.
Energy analysts then generally assumed that the price of oil would remain well over $100 deep into the future, and might gradually rise to even more stratospheric levels.
Such predictions inspired the giant energy companies to invest hundreds of billions of dollars in what were then termed "unconventional" reserves:
It seemed obvious then that whatever the problems with, and the cost of extracting, such energy reserves, sooner or later handsome profits would be made.
It mattered little that the cost of exploiting such reserves might reach $50 or more a barrel.
As of this moment, however, Brent crude is selling at $33 per barrel, one-third of its price 18 months ago and way below the break-even price for most unconventional "tough oil" endeavors. Worse yet, in one scenario recently offered by the International Energy Agency (IEA), prices might not again reach the $50 to $60 range until the 2020s, or make it back to $85 until 2040.
Think of this as the energy equivalent of a monster earthquake - a pricequake - that will doom not just many "tough oil" projects now underway but some of the over-extended companies (and governments) that own them.
The current rout in oil prices has obvious implications for the giant oil firms and all the ancillary businesses - equipment suppliers, drill-rig operators, shipping companies, caterers, and so on - that depend on them for their existence.
It also threatens a profound shift in the geopolitical fortunes of the major energy-producing countries.
Many of them, including,
...are already experiencing economic and political turmoil as a result. (Think of this, for instance, as a boon for the terrorist group Boko Haram as Nigeria shudders under the weight of those falling prices.)
The longer such price levels persist, the more devastating the consequences are likely to be.
A Perfect Storm
Generally speaking, oil prices go up when the global economy is robust, world demand is rising, suppliers are pumping at maximum levels, and little stored or surplus capacity is on hand.
They tend to fall when, as now, the global economy is stagnant or slipping, energy demand is tepid, key suppliers fail to rein in production in consonance with falling demand, surplus oil builds up, and future supplies appear assured.
During the go-go years of the housing boom, in the early part of this century, the world economy was thriving, demand was indeed soaring, and many analysts were predicting an imminent "peak" in world production followed by significant scarcities.
Not surprisingly, Brent prices rose to stratospheric levels, reaching a record $143 per barrel in July 2008. With the failure of Lehman Brothers on September 15th of that year and the ensuing global economic meltdown, demand for oil evaporated, driving prices down to $34 that December.
With factories idle and millions unemployed, most analysts assumed that prices would remain low for some time to come.
So imagine the surprise in the oil business when, in October 2009, Brent crude rose to $77 per barrel. Barely more than two years later, in February 2011, it again crossed the $100 threshold, where it generally remained until June 2014.
Several factors account for this price recovery, none more important than what was happening in China, where the authorities decided to stimulate the economy by investing heavily in infrastructure, especially roads, bridges, and highways. Add in soaring automobile ownership among that country's urban middle class and the result was a sharp increase in energy demand.
According to oil giant BP, between 2008 and 2013, petroleum consumption in China leaped 35%, from 8.0 million to 10.8 million barrels per day. And China was just leading the way.
Rapidly developing countries like Brazil and India followed suit in a period when output at many existing, conventional oil fields had begun to decline; hence, that rush into those "unconventional" reserves.
This is more or less where things stood in early 2014, when the price pendulum suddenly began swinging in the other direction, as production from unconventional fields in the U.S. and Canada began to make its presence felt in a big way. Domestic U.S. crude production, which had dropped from 7.5 million barrels per day in January 1990 to a mere 5.5 million barrels in January 2010, suddenly headed upwards, reaching a stunning 9.6 million barrels in July 2015.
Virtually all the added oil came from newly exploited shale formations in North Dakota and Texas.
Canada experienced a similar sharp uptick in production, as heavy investment in tar sands began to pay off. According to BP, Canadian output jumped from 3.2 million barrels per day in 2008 to 4.3 million barrels in 2014.
And don't forget that production was also ramping up in, among other places, deep-offshore fields in the Atlantic Ocean off both Brazil and West Africa, which were just then coming on line.
At that very moment, to the surprise of many, war-torn Iraq succeeded in lifting its output by nearly one million barrels per day. Add it all up and the numbers were staggering, but demand was no longer keeping pace.
The Chinese stimulus package had largely petered out and international demand for that country's manufactured goods was slowing, thanks to tepid or nonexistent economic growth in the U.S., Europe, and Japan.
From an eye-popping annual rate of 10% over the previous 30 years, China's growth rate fell into the single digits. Though China's oil demand is expected to keep rising, it is not projected to grow at anything like the pace of recent years.
At the same time, increased fuel efficiency in the United States, the world's leading oil consumer, began to have an effect on the global energy picture.
At the height of the country's financial crisis, when the Obama administration bailed out both General Motors and Chrysler, the president forced the major car manufacturers to agree to a tough set of fuel-efficiency standards now noticeably reducing America's demand for petroleum.
Under a plan announced by the White House in 2012, the average fuel efficiency of U.S.-manufactured cars and light vehicles will rise to 54.5 miles per gallon by 2025, reducing expected U.S. oil consumption by 12 billion barrels between now and then.
In mid-2014, these and other factors came together to produce a perfect storm of price suppression.
At that time, many analysts believed that the Saudis and their allies in the Organization of the Petroleum Exporting Countries (OPEC) would, as in the past, respond by reining in production to bolster prices.
However, on November 27, 2014 - Thanksgiving Day - OPEC confounded those expectations, voting to maintain the output quotas of its member states.
The next day, the price of crude plunged by $4 and the rest is history.
A Dismal Prospect
In early 2015, many oil company executives were expressing the hope that these fundamentals would soon change, pushing prices back up again. But recent developments have demolished such expectations.
Aside from the continuing economic slowdown in China and the surge of output in North America, the most significant factor in the unpromising oil outlook, which now extends bleakly into 2016 and beyond, is the steadfast Saudi resistance to any proposals to curtail their production or OPEC's.
On December 4th, for instance, OPEC members voted yet again to keep quotas at their current levels and, in the process, drove prices down another 5%. If anything, the Saudis have actually increased their output.
Many reasons have been given for the Saudis' resistance to production cutbacks, including a desire to punish Iran and Russia for their support of the Assad regime in Syria.
In the view of many industry analysts, the Saudis see themselves as better positioned than their rivals for weathering a long-term price decline because of their lower costs of production and their large cushion of foreign reserves.
The most likely explanation, though, and the one advanced by the Saudis themselves is that they are seeking to maintain a price environment in which U.S. shale producers and other tough-oil operators will be driven out of the market.
Despite the Saudis' best efforts, the larger U.S. producers have, for the most part, adjusted to the low-price environment, cutting costs and shedding unprofitable operations, even as many smaller firms have filed for bankruptcy.
As a result, U.S. crude production, at about 9.2 million barrels per day, is actually slightly higher than it was a year ago.
In other words, even at $33 a barrel, production continues to outpace global demand and there seems little likelihood of prices rising soon, especially since, among other things, both Iraq and Iran continue to increase their output. With the Islamic State slowly losing ground in Iraq and most major oil fields still in government hands, that country's production is expected to continue its stellar growth.
In fact, some analysts project that its output could triple during the coming decade from the present three million barrels per day level to as much as nine million barrels.
For years, Iranian production has been hobbled by sanctions imposed by Washington and the European Union (E.U.), impeding both export transactions and the acquisition of advanced Western drilling technology.
Now, thanks to its nuclear deal with Washington, those sanctions are being lifted, allowing it both to reenter the oil market and import needed technology. According to the U.S. Energy Information Administration, Iranian output could rise by as much as 600,000 barrels per day in 2016 and by more in the years to follow.
Only three developments could conceivably alter the present low-price environment for oil:
The prospect of a new war between, say, Iran and Saudi Arabia - two powers at each other's throats at this very moment - can never be ruled out, though neither side is believed to have the capacity or inclination to undertake such a risky move.
A Saudi decision to constrain production is somewhat more likely sooner or later, given the precipitous decline in government revenues.
However, the Saudis have repeatedly affirmed their determination to avoid such a move, as it would largely benefit the very producers - namely shale operators in the U.S. - they seek to eliminate.
The likelihood of a sudden spike in demand appears unlikely indeed.
Not only is economic activity still slowing in China and many other parts of the world, but there's an extra wrinkle that should worry the Saudis at least as much as all that shale oil coming out of North America:
While newly affluent consumers in China and India continue to buy oil-powered automobiles - albeit not at the breakneck pace once predicted - a growing number of consumers in the older industrial nations are exhibiting a preference for hybrid and all-electric cars, or for alternative means of transportation.
Moreover, with concern over climate change growing globally, increasing numbers of young urban dwellers are choosing to subsist without cars altogether, relying instead on bikes and public transit.
In addition, the use of renewable energy sources - sun, wind, and water power - is on the rise and will only grow more rapidly in this century.
These trends have prompted some analysts to predict that global oil demand will soon peak and then be followed by a period of declining consumption.
Amy Myers Jaffe, director of the energy and sustainability program at the University of California, Davis, suggests that growing urbanization combined with technological breakthroughs in renewables will dramatically reduce future demand for oil.
The Changing World Power Equation
Many countries that get a significant share of their funds from oil and natural gas exports and that gained enormous influence as petroleum exporters are already experiencing a significant erosion in prominence.
Their leaders, once bolstered by high oil revenues, which meant money to spread around and buy popularity domestically, are falling into disfavor.
With oil now at a third of the price of 18 months ago, state revenues in all three have plummeted, putting a crimp in their ability to undertake ambitious domestic and foreign initiatives.
And keep in mind that the tremors from the oil pricequake have undoubtedly yet to reach their full magnitude.
Prices will, of course, rise someday. That's inevitable, given the way investors are pulling the plug on energy projects globally. Still, on a planet heading for a green energy revolution, there's no assurance that they will ever reach the $100-plus levels that were once taken for granted.
Whatever happens to oil and the countries that produce it, the global political order that once rested on oil's soaring price is doomed.
While this may mean hardship for some, especially the citizens of export-dependent states like Russia and Venezuela, it could help smooth the transition to a world powered by renewable forms of energy.