Never fall in love with an asset. Had a small interest in an East Texas well. At the height of the boom in East Texas, a company approached me on the buyout of my interest. I ran the income numbers and the amount of oil to come online in the next few years. Grabbed the money and ran. Well value fell tremendously with the collapse of oil prices. One of the best decisions I ever made.
Back to reality.
Oil was overpriced under the belief that supply was declining, fracking in the US showed that to be incorrect. Prices declined to $70/bbl or so, then the Saudis ramped up production to drive US suppliers out of business, and prices have declined further, $30/bbl or less. Once these US suppliers are largely offline, supply will tighten and the price will rise once again. It remains to be seen, how quickly things can ramp back up again in the US, but that should cap the increase and it won’t be over $100. Financial challenges due to prior defaults might hamper that ramping back up again, though.
Rather lengthy but informative as hell.
Well, duh. Same cycle every ten years since 1820 and the author is surprised?
I don’t see it as wealth destruction, but wealth shifting, from the owners of oil to the consumers of oil.
Last Tuesday I bought a half-case of beer. I paid $14 bucks for it and I bet all I could get for the empties is 25 cents. That’s $13.75 up in smoke (or down the drain, depending on how you look at it).
That $100T is the market’s estimate of the net present value of the reduction in the income stream that would have flowed into energy producers’ pockets if prices had maintained their high levels.
Symmetrically, that’s a conservative estimate of the net present value of the money that consumers will have available to spend on things other than energy. Let the party begin!