Skip to comments.Don't expect oil prices to rebound anytime soon
Posted on 04/02/2015 12:15:57 PM PDT by Perkinsbob54
Its not even 8 a.m. and rush hour is on in northwestern New Mexico. Dozens of big white trucks and water tankers, neon flags flying, head north to the gas patch. Im driving south, through Aztec, and as I pass the retro-orange A&W on the edge of town, I pull up alongside a drilling rig. The things huge, too huge, it seems, to be rolling along the same road as my little Nissan. Yet the strange, rolling infrastructure has been a familiar site around here for decades back in 1948, when a UFO purportedly crashed out on a nearby mesa, the government disguised the recovery mission as an oil and gas drilling operation, which makes perfect sense.
But rolling drill rigs are becoming a little less common around here. Back in 2008 natural gas prices crashed, putting a huge dent in extraction of the regions main cash crop. Now oil prices have slumped, too, dealing another blow to the main local economic driver.
A pumpjack, with Farmington and the Sleeping Ute Mountain in the background.
My efforts to photograph the drill rig make me late to the Thriving in the New Normal workshop at San Juan College in Farmington, but I arrive in time to hear Dr. Daniel Fine, from the New Mexico Energy Policy Center, deliver a grim speech. Tall and thin in a rumpled suit and wire-rimmed glasses, it's fair to say Fine doesn't fit into this crowd of big men, most of whom work in the oil and gas industry, their blonde hair shorn close to the skull, wearing beat-up boots and fleece vests adorned with company logos.
(Excerpt) Read more at hcn.org ...
Fine, who has testified before Congress on energy issues, lays out a world of geopolitical intrigue and scheming that plays out in the oil and gas fields just outside the room in which he speaks. The Organization of Petroleum Exporting Countries (OPEC) has long been concerned about the shale revolution in the U.S., and its potential for eroding the cartel's global market share. And OPEC officials have kept a very close eye on what's going on in North Dakota's Bakken, in the Permian Basin in Texas and southern New Mexico and, more recently, in the San Juan Basin in northwestern New Mexico. The U.S. rig count, Fine says, is translated into Arabic shortly after it's published here.
Saudi oil ministers were well aware, then, that while the shale revolution has been a rousing success, pumping U.S. production up to levels that haven't been seen since the mid 1980s, it is also expensive to do costing three to ten times the production price of a Saudi Arabian barrel of oil. Many U.S. companies have gone deeply into debt to finance their costly drilling operations, making them especially vulnerable to any decreases in oil prices.
Sign, San Juan Basin, New Mexico.
During the summer of 2014, oil prices began to ebb slightly as global supplies caught up with and then exceeded global demand. It was the window Saudi Arabia had been looking for, and rather than curtail production to stabilize prices, as many expected the nation to do, it continued to pump oil at a high rate, even going so far as to offer discounts to Asian nations. Prices plummeted from $100 per barrel to $80 to right around $50 today, a level that had seemed impossible in July. Already, the oil and gas industry here in the U.S. has taken serious casualties. The number of rigs operating a barometer of the industrys economic activity has crashed. Oilfield service companies have laid off thousands of workers. Boomtowns are on the verge of going bust. Even apartment rental rates in North Dakotas oil patch have started to wane.
Its similar to 1985 and 1986, when the same OPEC offensive took place, says Fine. Back then, it took more than two years for prices to recover, and far longer for the industry and the communities that relied on it to get out of the hole. While price drops take just a few months to be manifested in rig counts and employment levels, the response to price increases is usually a lot slower. Will oil rebound to $100? Im here to say no.
I am of the opinion that the falling prices have squeezed many speculators out of the market. Until the “excess” is consumed by the market, I doubt that they will be back.
Until the excess is consumed by the market, I doubt that they will be back.
Meanwhile, this is music to my ears, with my 160 mile a day commute.
I hope they never go back up - I am driving more and have extra cash, which I have used to take my lady out to dinner a little more often.
LOL! Rush hour in NW New Mexico? So, about 12 cars and a couple pick up trucks and several tractor trailers? Watch for the back up at the stop lights.
In the early afternoon I passed a Shell station selling at 2.139; neighboring bargain brand stations were 2.109; a mile along the street the local leading bargain brand was at 2.499, and I figured it was just a "sticky downward" thing, the price sign looked like it had been messed with and not finished. I swung around and went back to the Shell (the 3 cent off card I have brought the price down to the Admiral price), tanked up. About 90 minutes later, on the way back through after doing some business, the Shell had risen to 2.499, matching the Wesco, while the Admirals were still 2.109, and I was glad I'd already filled up.
It’s also extremely similar to 1974 when the Soddies got cute and did their embargo clusterflock. They were pushing the price of gas close to a buck and then realised they were getting close to the production cost of alcohol. I wrote about this at the time. If alcohol had gotten started at the time the Soddies and their OPEC friends would have been out of business forever. So they pulled back rather quickly.
Between US and Canadian reserves, alcohol, and technology there is enough pressure to keep the Soddies honest most of the time. My real fear is that Obozo and his band of geniuses will use the low gas price as an opportunity to raise Fed fuel tax.
In any case oil around 50 bucks indefinetly will help make sure that the mideast mischief makers will be much more limited in the stupidity they can pull off. Not to mention putting Pootin out of bizness.
I was told by oil investors higher gas prices were good for our economy.
They should just set the price at 5 bucks a gallon so the economy can really soar.
And it isn’t just the Saudi’s. Obama/Kerry gave away the store today to Iran lifting sanctions in return for nothing except their going ahead with a nuclear bomb. Iran has lots of oil and with no sanctions in place, they are looking to flood the market with cheap crude as soon as possible to make up for years of restrictions.
$5 p/gal was Obama’s goal spelled out several times in his first campaign.
If it drops to $2 /gal all the money saved at the gas pump goes into the economy from citizens and not oil companies (revenue) and government (taxes.)
Wow, that is a long commute!