And the virtues of slow moving ships. 
Slippery Slope for Oil
Courtesy of Vitaliy Katsenelson at Minyanville
According to the Wall Street Journal, "Gas use in Europe’s largest economies fell as much as 16% this winter despite unusually cold conditions, according to IHS Global Insight."
It’s hard to be bullish on commodities after reading these types of statistical datapoints, especially when you consider that Europe isn’t the world’s foremost producer of things (China is), and thus natural gas there primarily goes to heat homes. (Here, watch UNG, USO and DIG.) Of course, there’s another side to this story. Gazprom will be cutting capital expenditures to cope with lower demand and lower gas prices (natural gas prices lag oil prices).
Gazprom, despite being government-controlled, isn’t a unique case. Oil and gas companies are facing lower demand and sharply lower prices, and thus, much lower free cash flows are causing them to slash production and capital expenditures. Capital expenditures are easier to cut out of the 2. Those are the future revenues — and thus, future problems — which, at least from today’s perch, pale in relevance to management.
Lowering production is a bit trickier for both oil and gas companies, as that impacts current revenues. Oil- and gas-rich nations like Russia, countries in the Middle East, and Venezuela, all face a similar problem: They stand on one leg — petrochemicals — and that leg is being undermined by a global decline.
However, their social obligations have ballooned during time of prosperity – cutting production lowers already-declining revenues, while social obligation costs don’t decline. 
What does this all mean? Lower demand for petrochemicals in the short run is becoming a certainty. Lower production in the short term isn’t certain, though it’s very possible (OPEC, to my surprise, did reduce production so far, but will it be able to maintain it?).
In the longer run, the supply of petrochemicals won’t be robust; it will decline. It will take high oil and gas prices to cure that problem, as it always does. [end of part 1, part 2 next paragraph]
It’s amazing what companies will do to cut costs during a recession. We know that demand for oil will decline during a global economic slowdown. Basically, global consumption of goods decline, fewer goods are manufactured, and fewer ships are needed to cross the Atlantic. Simply, fewer petrochemicals are used.
Today’s article in the Wall Street Journal discusses how Maersk — a large shipping company — is trying to save $1 billion a year.
"Eugen Maersk has left Rotterdam, the Netherlands, on the tail end of a journey from Shanghai. But the giant freighter is cruising at 10 knots, well shy of her 26-knot top speed… At about half speed, fuel consumption drops to 100-150 tons of fuel a day from 350 tons, saving as much as $5,000 an hour.”
I’m sure this strategy was unthinkable only a year ago; consumers wanted goods, and they wanted them now. But now that inventories are piling up, car companies are probably finding it cheaper and safer to store cars on slow-moving ships than in ports or parking lots.
This is just one (though very large) company trying to survive in a very tough environment. Imagine what other companies worldwide are doing to survive. The point: Oil consumption may drop a lot more than we expect.
Vitaliy is Director of Research with Investment Management Associates, Inc. and is the author of Active Value Investing: Making Money in Range Bound Markets, and teaches practical equity analysis at the University of Colorado at Denver’s Graduate School of Business.
