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Reuters Energy analyst John Kemp has published a timeline of events that explain the latest crash in crude oil prices. As energy prices enter a new era, we’ll be focusing more and more on this sector, and how it relates to the automobile.
71 Comments on “A Brief History Of The Oil Crash...”
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I just spent $2.60 on Premium Unleaded 93 in my Jeep SRT this morning.
The news keeps screaming “crash” and “oil tanking in price” but till I see it go below $2, I’m not excited.
It’s funny that I got used to spending $4.25 and now I’m seeing the extra leftover money which I can use for upgrading my office equipment.
In the same boat here. My friend and family are thrilled to be paying under $2, now down to $1.78 or less in Texas. I want to play the under $2 game too. Just spent $2.18 on Shell V-power 93. I could spend $2.05 if I get my gas from Quick Trip, but I try to keep to the major brands with my car.
Oh well, I knew what I was getting into when I bought a car that requires premium. I don’t regret it for a minute.
You’re probably getting major brand gas from the independents. There’s such a glut of gas that the independents are getting major brand gas cheap, and passing on the savings. The major brand stations are following the downward trend in prices, undermined by their own suppliers and the aggressive pricing of the independents who can pick and choose the cheapest supplies. The small refinery operators who put out iffy gas are long gone, run out of business by enviro costs – it’s all major brand gas now.
Smaller refineries have also been bought out by the big operations and either consolidated or closed down.
Hence, in markets where a few big refiners control the market (such as the West Coast), a shut-down by one due to “routine maintenance” can cause a spike in the price of gas.
Click the link – read the paper – it is a great read.
+1
No commenting unless you read the link
That rules out BTSR.
Yes, many thanks to TTAC for posting that.
The chart on the top of page 7 of the PDF file is the most important thing in there.
The demand for oil futures contracts by speculators has plummeted. They create the froth in the market because they are interested in short-term profit taking and the ability to benefit from short-term pricing movements, not in the actual price itself.
They will pay more if the trade appears to be profitable, so they bid up the futures price for reasons that the hedgers will not. And since the futures price influences the spot price, none of us are immune.
If you want to understand this on a more personal level, go learn about daytrading stocks. The same sort of dynamics apply, but the oil trades are more highly levered, which can lead to even more volatility.
You’ve just pointed out why daytrading should be illegal. It makes the markets far too vulnerable to rumors and outright lies as well as computer-speed technologies. Put a time limit on all trades that they MUST be held for a minimum of 48 hours once purchased or sold.
Neither daytrading nor speculation should be illegal. That wasn’t the point of the comparison.
The point was to note that speculators have motivations to sometimes overpay that hedgers do not have. Too many speculators = too many guys willing to overpay = higher prices during bubbles. When they bail out, prices fall fast, just as oil prices are now.
A fellow I know makes his living day trading and oil stocks are one of his favorites since he plays the seasonal trends to his advantage.
The thing is, with the Commodity Futures Modernization Act of 2000, spearheaded by Phil Gramm, the futures market went from a valid method of hedging on future supply to one which allowed rampant speculation (and the immense flow of $$ into oil futures).
It’s no coincidence that the CFMA included a little provision known as the “Enron Loophole” and that Gramm’s wife, Wendy was the head of the CFTC and then served on the Board of Enron (serving on its Audit Committee).
What Enron managed to do with the California electricity market is not dissimilar to what Wall St./hedge funds have been able to do with oil futures.
Gramm also played a large role in setting up the conditions for the sub-prime/financial derivatives mess which nearly destroyed the US economy.
But his service to the financial sectors has been richly rewarded, now a Vice Chairman at UBS, the Swiss banking giant.
And Democrat President Bill Clinton signed the bill into law.
Who should get most of the blame?
Clinton was a pro-big biz President and yet, he was reviled by the Repubs (liberals didn’t particularly care for Clinton or for Hillary for that matter).
Also, Clinton can only sign what is put before him by Congress and there was a Repub majority and enough votes to override a veto.
It was GWBush who signed off on TARP and yet, it has been Obama who has gotten the blame by the Repubs (funny how that works).
Timing is everything.
With 60% of domestic RVs manufactured here in Indiana, I say “let’s roll”
Re: Indiana – rebirth of the conversion van industry? ;-)
I for one would like to see what a conversion of the new Ford vans would look like. I saw what was possible with the new promaster vans and really liked what I saw, at least on the inside. I like the outside of the new Ford’s much better.
The thing that amazes me how almost instantaneously people start buying gas hogs again, as if low gas prices are somehow permanent.
But prices will stay low forever now, right? How could they ever go back up again? That was an interesting PDF.
Just watched Hotel impossible where he went to “fix” a hotel in ND that housed a lot of oil workers and they were opening new hotels left and right in that area. This will definitely affect that region.
It already is hitting the region, and it will hit them harder and harder through the year.
The people hit the hardest will be those who purchased homes in oil boom towns at artificially inflated levels. I have a friend who works in Fort McMurray in the “Tar Sands”. A “normal” house sells for several times the price of a similar home elsewhere.
He moved to Calgary and “commutes” via commercial airline.
Judging from history low prices will stay low for at least 3-4 years. Barring some major disruption we shall see oil under $30 per barrel this year. The real fair price would be about $26 barrel.
Americans must demand 99 cent per gallon gas. Demand that feds drop ethanol mandate and reduce taxes! State gov’ts also must be made aware that increasing taxes will not go unnoticed/unpunished by the people.
I agree the ethanol mandate needs to go. Ethanol cost structure is supported when oil is around $80 a barrel, and is still dependent on fat subsidies and a government mandate to have it in market.
This limits the supply of corn and has indirectly driven up the cost of meat and cereal products due to the increase in feed and raw materials.
Red state agri-business and factory farm operations appreciates the corporate welfare.
There is just no need for it.
In real dollars the lowest for gasoline I ever paid was 69 cents a gallon in early 1987.
In inflation adjusted dollars the lowest I paid was 98 cents a gallon in 1998.
98 cents a gallon in 1998, would be about $1.42 a gallon today.
Exactly. Any chemists out there to clearly explain what was wrong with MTBE? And then was lead really that bad? Was lead removed just to accommodate catalytic converters? Surely lead is not good for humans and I am glad its gone from fuel. But there are other substances that are harmful. Can’t remove them all.
MTBE, like any oxygenated organic compound, is slightly soluble in water because of its oxygen content. Perhaps oversimplifying, this allows any spillage or leakage to make its way more easily into groundwater. So naturally when a few parts per billion of nasty-smelling MTBE started showing up in people’s drinking water, that was pretty much the end of MTBE as a gasoline additive.
Reduce taxes?
Are you kidding?
That’s how we fund the infrastructure (roads, bridges, tunnels, etc.) which are in horrible shape overall.
There already is underfunding since Americans have been driving less and thus buying less gas.
Of course, lower taxes would be great, but if anything, we need to increase the gas tax to pay for infrastructure repairs/maintenance.
And when it comes to infrastructure, it’s not only road, tunnels, bridges, etc. – the conditions of our pipelines carrying water is horrendous and our energy/electric grid is totally outdated, but we spent a couple of trillion on 2 wars so no $$ for vitally needed upgrades.
But yes, ethanol (esp. corn-based) is a total waste.
Low gas prices ARE permanent in a sense. Adjusted for inflation, the price of crude oil has been remarkably stable in the $10 to $30 range over the past 100 years. http://bit.ly/1AoNdpW
The last 10 years were a bubble. 2007 was the peak, 2010 was the dead-cat bounce, and 2014-2016 is looking like the awkward phase when it’s over but the masses don’t believe it. But dot-com stocks and Dutch tulip bulbs say we should believe it.
Now you have every right to disagree with this perspective, and lampoon those who buy a Dodge Ram in 2015. But it’s a logical perspective based on long-term historical evidence, which is more than I can say for the logic used by Peak Oil disciples when they flocked into Toyota Priuses in 2008.
Like your analysis. It’s impressive to me how thoroughly the peak oil theory has been thrashed. And they haven’t begun to frack most places in the world. My personal taste is small cars for everyday use, and I expect some screaming deals in upcoming years.
Only caveat that I would add is that the addition of a billion or so middle class consumers in India and China might change things a bit.
Historical trends are fine and can be useful, but you have to look at the current conditions as well. The world has never added this many people to the middle class all at once before.
Should be interesting times.
@clivesl,
Your logic is sound, but it’s a re-hash of the same argument used in 2007 to justify the bubble. ie: that things are different this time.
Things are rarely as different as they seem. In this case, increased demand from India and China was met with increased supply from fracking, horizontal drilling, and nervous Saudis leaving the taps open to preserve their market share.
Never underestimate the power of competition to resolve price spikes, and for long periods of time.
It’s difficult to compare oil prices since the mid-80s with earlier periods because we now use exchanges to set oil prices.
Prior to that, oil prices were generally set by cartels (first the western Seven Sisters oil producers that wanted low prices, then by OPEC that wanted higher prices.)
Now that prices float, the dynamics are different. The mid-2000s China/Iraq War bubble does seem to have ended, but given market cycles, there will be another bubble eventually. I doubt that it will take another two decades for that bubble to appear, unlike the last one.
The rise of the BRICs does put a new higher floor on oil, even if that floor isn’t anywhere near $100/bbl. If we settle into a band of about $50-70 (give or take) as I suspect, then that will still be higher in real terms than mid-$20’s pricing that we had fifteen years ago.
Great article. It was a fascinating read. I do question whether the situation with Russia is factored into this at all. Certainly the Russians are the ones most vulnerable to this drop in prices.
It has made a difference for me. Whereas before I was actively looking to replace my car with something more fuel efficient, it’s currently coming in about $100/month under budget, so until prices rise again, I’m better off staying with it.
How many still do a double-take on the price when you fill up and then look around like you’ll get caught buying gas from a pump that someone set the meter wrong
Me!
Yea. Paid $1.29 per gallon at the nearby Kroger, posted $1.69 – $40 customer fuel points. Told the wife it was like the good ole days.
@Lie2me – I think they’d have to go a bit more for me to double take. Even though it’s substantially lower than it was a year ago ($40 to fill the BMW vs almost $70), I’ve got a mental mark of around $30-$35, as that’s what I’m was used to seeing whenever I rented a compact (10-12 gallon tanks at $3-3.50 gallon), so I’m getting close. I’m renting a Ford Focus right now, so I’m sure I’ll have sticker shock on that (especially since I don’t mind putting Costco gas in the rental and that’s down to about $1.90/gallon regular vs $2.55/gallon for the top tier premium when I last filled the BMW). A emtpy tank top off under $20 will be quite the sight.
It cost me $22 to fill-up yesterday. I do remember going over $50 a couple of times on a very empty tank and I don’t live in a particularly cheap gas state. I use premium 100% gas
@lietome – filling up with the warning light on is usually around 16 gallons so gas prices would have to drop quite a bit more for me to see a $22 fill up. It would be nice.
Russia has proven to be extremely reliable energy supplier. They have huge currency reserves(second only to China I believe). With the upcoming collapse of Ukraine and increasingly symbiotic relationship with China Russian position is as strong as ever.
If there were any doubt in the markets about stability of Russia oil would be twice the current price. Russia is #1 oil producer and #2 exporter.
Number one oil producer in….
Top Five Oil Producing Nations
Country Production (thousands of barrels per day) Four Year Increase/Decrease
United States 14,246 30.80%
Saudi Arabia 11,558 3.98%
Russia 10,564 3.65%
Canada 4,612 27.86%
China 4,470 -0.03%
Source, USEIA – http://www.eia.gov, as of September 2014
And? Those are changes in production.
Russia was number 1 producer in 2014 just ahead of Saudi Ar. Of course not by exact amount(which is ephemeral anyway) but by all reasonable estimates.
The US EIA data does not even come close to supporting Russia was the number one producer for 2014.
That table isn’t changes in production – that is BBL/day production numbers for 2014. This is from the story I wrote a couple of days ago. Russia was the top producer as recently as 2011 – US production has grown 90% since 2008, 31% since 2010 – and the United States is by a landslide the biggest producer in the world as of 2014.
Downloadable production numbers through September of 2014 here:
http://www.eia.gov/cfapps/ipdbproject/IEDIndex3.cfm?tid=50&pid=53&aid=1
The United States has run over Russia as the largest producer and Saudi Arabia cranked up production faster than Russia.
More information to support:
http://www.politifact.com/truth-o-meter/statements/2015/jan/04/amy-klobuchar/klobuchar-says-us-worlds-no-1-oil-producer/
(not what the politco says but more data and charts from independent sources to support)
There seems to be an organized campaign of Russian trolls, I see you guys on a number of sites.
At the end of the day, your facts are wrong, your prognosis is wrong, the fact that you’re simply propagandists is obvious.
Putin follows the Goebbels school of propaganda – tell a lie often enough, people will come to believe it’s true.
“There are no Russian troops in Ukraine” – yeah, right, tell me another one….
An interesting read and all seems to come down on a misjudgment of both supply and demand growth. However, this temporary glut will pass and prices will recover. Maybe not to $100/b immediately but while developing countries are still bringing more of their people into the middle class, the demand for oil will steadily increase.
Or maybe BTSR will give in and buy that Hellcat he’s had his eye on in which case demand should be spiking soon.
I’ll make a prediction: I keep seeing and hearing about people driving more and buying bigger vehicles in light of cheap gas prices. Demand will inevitably continue to rise driving up fuel prices as the economy grows. Those gas guzzlers that everyone is running out to buy now will have the biggest drop in resale value by the time they’re paid off in a few years and oil is back at around 100/barrel. While those Prius’s and Versas might not make sense with sub $2 fuel prices, they’ll command a premium by the time they’re paid off and you go to sell/trade in. So, if you’re the type of person who concerns themselves with resale valuse, I’d still gpo with the hybrid. Remember the Hummer?
” Those gas guzzlers that everyone is running out to buy now ”
What “gas guzzlers”? According to the EPA the worst two vehicles you can buy for gas economy are the Mercedes-Benz G550, 8 cyl, 5.5 L, Automatic 13mpg combined and the Bugatti Veyron, 16 cyl, 8.0 L, Auto (AM-S7) 10mpg combined, everything else is better including trucks
I haven’t heard that sales are through the roof on either those two cars
http://www.fueleconomy.gov/feg/best-worst.shtml
Granted, big cars built today are much more fuel efficient than they were 10 years ago, but vehicle design and the laws of physics still dictate that bigger vehicles consume more fuel than smaller ones. More people are buying bigger ones.
Three best selling vehicles in the US for December ’13 and ’14:
1.Ford F-150 (12/13–65k sold) (12/14-74k sold)
2. Chevy Silverado (12/13-34k sold) (12/14-42k sold)
3. Dodge Ram (12/13-27k sold) (12/14-33k sold)
http://www.businessinsider.com/best-selling-cars-in-december-2013-2014-1#10-ford-fusion-12
Also, check out the percent sales increases of trucks and SUVs compared to cars from year to year here…
http://www.detroitnews.com/story/business/autos/2015/01/05/automakers-report-december-sales/21277199/
…so yes, people are running out to buy gas guzzlers because of cheap fuel costs, and if the history of the market is any prediction for what is down the road (pun intended), we will probably see a rise in fuel cost followed by less demand and oversupply of “less fuel efficient” (is that better?) vehicles.
Ok, going by your examples of “gas guzzlers” look what’s happened in just the last two years to those “guzzlers” each one now gets 20mpg combined for the basic 6cyl truck.
Guzzlers just don’t guzzle like they used to
2013 Ford F150 Pickup 2WD 6 cyl, 3.5 L, Automatic 6-spd, Regular Gasoline 18mpg combined
2015 Ford F150 Pickup 2WD 6 cyl, 3.5 L, Automatic (S6), Regular Gasoline 20mpg combined
2013 Chevrolet Silverado C15 2WD 6 cyl, 4.3 L, Automatic 4-spd, Regular 17mpg combined
2015 Chevrolet Silverado C15 2WD 6 cyl, 4.3 L, Automatic 6-spd, Regular Gas 20mpg combined
2013 Ram 1500 2WD 6 cyl, 3.6 L, Automatic 8-spd, Regular Gas 20mpg combined
2015 Ram 1500 2WD 6 cyl, 3.6 L, Automatic 8-spd, Regular Gas 20mpg combined
http://www.fueleconomy.gov/feg/bymodel
Yeah, but how many people buy the “basic” 6cyl truck? How much time do you and others spend on these boards arguing about how a truck needs massive horsepower for everyday driving? Even the blinkin’ EcoBoost isn’t nearly as economical as it should be because of the way owners drive them. And that same “basic 6cyl” does much, MUCH better in a smaller, more aerodynamic package–capable of 50% better fuel mileage by not having to push as much air around or drag as much weight around. (The Aluminum F-150 has failed its economy goals with the 2.7 EcoBoost in real-world driving).
The point
.
You
.
*sigh*
I see you chose not to answer the question, Lies. Simply put, the trucks aren’t achieving real improvements; I would barely call them incremental. Their size is their biggest limitation as the aluminum F-150 has proven.
I really should have gone back to 2008 when people with “gas guzzlers” got caught short as gas prices soared to over $4 a gallon. Back then these same trucks got 16mpg combined now they get 20mpg combined
If people are rushing out to buy gas guzzlers in today’s market and gas prices go back to $4 a gallon they’re still ahead of the game that was 2008.
You can read anything you want into those numbers, but today’s gas guzzlers don’t guzzle nearly what they did 7 years ago, thus the effect on Joe average not nearly as dramatic.
While I agree with your general point, tjh, going from 10 mpg to 28 mpg city is a HUGE difference and that’s what I got by switching from an F-150 to a Fiat 500. Now consider those savings.
My basic argument is that even at 16mpg for a full sized truck, a compact truck should be capable of 24-25 mpg city simply due to the fact that it is both lighter (easier to get moving in the first place) and more aerodynamic even if the “shapes” are the same as the CoD is multiplied by a far smaller frontal area (easier to keep it moving). If you consolidate this by using the exact same engine/transmission/final drive ratios the smaller truck should realize a minimum of 40% improvement in highway mileage and at least 30% improvement in city mileage. In other words, the 16mpg overall would jump to about 26mpg or an overall savings of 350+ gallons per year or roughly $1,000 at last summer’s prices.
And as you discovered for yourself, the Ford/EPA numbers just don’t work out in real life.
@Vulpine – curb weight of a base model 4 cylinder 2014 Toyota Tacoma is a still hefty 3600 lbs and it scores a 21/25/23 city/highway/combined number. I would imagine that gearing has a lot to play into this, as that’s only a 5 speed transmission. The Taco is showing a 3.3 rear end on the 4 and a 3.37 on the V6 which is probably also not helping. 24-25 is what most midsize 4 cylinder sedans are getting, and they typically weigh a few hundred pounds less than the Tacoma, are more aerodynamic, and have better transmissions, so 21 City isn’t too shabby. The numbers on fuelly seem to indicate they are doable in the real world.
I assume a lot of weight comes from the frame. The weight of the truck doesn’t change much going (about 100 lbs) from a standard to crew cab.
My ’02 Saturn Vue was a “hefty 3600 pounds” with an Opel 4 cylinder engine/6-speed stick and got over 30mpg on the highway and somewhere around 22-24 in town. And it wasn’t a dog at accelerating, either. I’ve driven the ’14 base model and I couldn’t believe how sluggish that I4/5-sp was by comparison. And to get worse gas mileage than the Vue?
As for 4-cylinder sedans, most of them should be making about 22-24 city and 32+ highway even considering they’re probably about 700-800 pounds lighter than the Toyota. I’ll grant a big piece of the difference is the aerodynamics (pickup trucks offer rather blunt faces to the wind) but the power of the engine and sufficient gearing should still do a lot better than what we’re seeing so far.
The point is that today’s trucks simply aren’t being given the proper powertrain to offer both performance and economy. There is no reason they have to be so blunt-nosed and high-geared that they can’t accelerate out of a paper bag and can’t run at a decent, economical RPM on the highway. If I’m driving a car with a 6-speed automatic and we’ve got trucks running 8- and 10-speed automatics today, they should be able to practically burn rubber with even the tiniest engine available and still run at or below 2500 rpm at 65mph.
And while a fair portion of the weight comes from the frame, is it conceivably possible that they have far more frame than they need for the class? A light-duty pickup truck doesn’t need to carry a whole-‘nother truck across the bed rails and two more on a trailer behind it. Light duty means LIGHT duty–1000 pounds plus driver and passenger on board with maybe 4000 pounds towing. It also doesn’t have to be bigger than a residential garage.
Again, if a 12-year-old “SUW” (Sport Utility Wagon, according to my insurance company) can do it, a brand new similar-weight pickup truck should be able to.
@Vulpine and Lie2me:
Two points on your discussion:
If we had seen a real, even small improvement in pickup truck efficiency, it would make a substantial difference in fuel consumed. For example:
16 mpg overall = 937.5 gallons over 15k miles
20 mpg overall = 750 gallons over 15k miles, a savings of 187 gal
compare to a car
26mpg overall = 577 gallons for 15k miles
30 mpg overall = 500 gallons for 15k miles, a savings of 77 gal
My point? a seeming small gain of 4 mpg makes a much more substantial difference in a truck than a car, and that’s before you consider that an F150 sells more than twice as many vehicles as a Camry, so those fuel savings are multiplied over the larger fleet.
That being said, I actually had to change what I was going to say in this comment after doing some research (I was gonna call it case closed after running those numbers). This works great on paper, but a quick comparison of 2008 F150s to 2014 F150s on both Fuelly and True Delta don’t show any meaningful improvements in real world mpg between the two years.
Yep I remember the Hummer, own 6.
Still drove the most inefficient one when gas around here peaked at about $3.90, guess what, the people hurt the most are the local bussinesses that are losing my money when fuel is high, my demand is inelastic.
There’s no such thing as a cheap gas-guzzler today, so where people are finding these NOS big block Chevy/Ford/Mopar cars you claim exist, I don’t know, but I would love for you to point them out for me.
The Camry might rise to the #1 spot when fuel prices spikes upwards, but It’s not either/or. It only takes a slight dip in “gas guzzler” sales for this to happen.
Although gas guzzlers have always lost value faster than anything except German Luxury. Except used pickup trucks b/c of very high demand in the trades and exports to Mexico and beyond.
This is the perfect time to raise the federal gas tax to help rebuild our infrastructure.
Why federal? If anything it should be state. I was in Michigan yesterday and their roads are horrible but gas was only $1.69.
Better still, it’s also a good time to start looking to replace the gas tax altogether as fuel consumption is no longer a good means for calculating road use, in fact it’s regressive as poorer folks can’t afford newer fuel efficient cars.
We have a very high tax on gas in Michigan because we also add 6% sales tax to gasoline. We also like to use the gas tax for everything but roads.
“in fact it’s regressive as poorer folks can’t afford newer fuel efficient cars.”
I would argue that they could, if they were only willing to consider something a bit different from what they’re used to. (It would also help if trucks did the same thing.)
A brand new car like a Scion, Kia or even Fiat can price as low as $16K and 2-year-old models can be as low as $10K. These cars are capable of nearly 30mpg city and exceeding 40mpg highway. Monthly payments are half or less that of the more expensive, supposedly more comfortable cars. (Note I said ‘supposedly’.) These cars are not necessarily “strippers”, either. My own Fiat 500 Pop has AM/FM radio with a USB connection for an MP3 player and bluetooth for remote calling with functional controls for such on the steering wheel. It’s surprisingly comfortable and even more surprisingly quick and agile in traffic. You really can’t say a fuel-efficient car isn’t affordable any more unless they simply have no income at all.
I do agree that some locales have a very poor road maintenance record. One specific county in Pennsylvania is rather well noted for not repairing paved roads until they’re rutted worse than old-time dirt roads. (Ok, I’m exaggerating a bit, but I’ll also note that there’s one 4″ deep pothole on an expressway in that county that hasn’t been patched in four years as an example.) Where the county spends its road money I have no idea, but the very next county over has roads almost as smooth as silk by comparison and driving from one to the other is day to night on the same class of county road. State highways between counties are similar, as are even Federal highways. You simply have to question where the infrastructure money is going.
Great article that explains it all in simple terms. The graphs at the end show the basics.
I moved to Texas just as the last crash was getting over with. I got a pretty good deal on my cabin in the woods. I’m about 3 years from retirement (sooner if I can figure it out) and I’ll be moving back to California (family). All I ask is that if it does crash again, it recovers in time for me to sell my place for some kind of decent profit and I can payoff my new cabin in the Sierras.
I think it’ll be low for awhile. Letting prices drop was smart by OPEC, but they’ll always have shale oil knocking at their door, and technology will continue to drive the break-even point down.
I would also suspect that most developing countries won’t follow our suburbanization patterns quite like we did. It isn’t very sustainable and outside of the conditions we had post war, it doesn’t seem like a reasonable direction for them to take. So while their growth will increase demand, I don’t think it will be proportional. Additionally they’ll have some advantages of utilizing our technology.
Global conflict is probably the greatest variable. I’m still waiting for all the oil we went to Iraq for even if it seems we don’t need it now.
The timing of the cutbacks from the oil producers is going to be interesting. I’m watching this from the fence in western Canada. CAPEX cuts in the 30% of what was budgeted for 2015 have already been announced. Proportionnally, layoff so far in Canada have been lower than that so far. Keep in mind Suncor is letting 1000 people go, Shell trimmed their headcount by about 10% by Fort Mac. In Canada, the drill rig count is behind year on year by roughly 25% for December. More cutbacks to come is likely in my opinion.
That link was a great find. It’s one thing to find information about commodity markets, but putting the story in chronological order puts context like very few sources can put together.
Something that never gets mentioned is that fracking is an American phenomena.
What happens when the rest of the world starts using these techniques?
The rest of the world doesn’t have our entrepreneurship, private property rights or our legal/financial system. You may think there’s a lot of corruption/inefficiency in America, and you’ll be right, but we’re pikers compared to most of the world.
That’s why I think the peak oil argument has been so thoroughly demolished. Fracking will open up production in places around the world that folks haven’t even considered as reservoirs. And there’s nothing super exotic about the technology. You do need equipment and knowledge, and lots of sand and water, stuff that’s not too difficult to obtain many places when there’s big money to be made.
Oops, what else might happen when other clever monkeys figure out how to mine petroleum source rock? Let’s give a shout out for the Texas wildcatters!