Lower oil prices

According to Greek mythology, the one characteristic the gods resented was hubris, self-pride.

Advertisements on television proclaim the greatness of the United States as “the world’s number one oil superpower.” Too, at sporting events the crowds chant “U.S.A., U.S.A.” For the time being developments in the energy sector reinforce that view, but for how long?

The energy revolution never ceases to amaze the world. Who would have believed that a few decades ago the United States would be in that position? Most reports formerly suggest that the U.S. would be running out of oil. Abundant oil and gas now are being extracted from rocks by blasting them with a mixture of water, chemicals and sand, called fracking.

The firms responsible for that totally unforeseen development are made up of engineers, entrepreneurs, and suppliers of capital for markets that no other nation can match. As a result surprisingly, United States has become the world’s largest oil producer and now is self-sufficient in oil.

The major oil producing companies are jumping into this new extractive process. If the price of oil were at least $70 a barrel, oil from that will continue to flow. Below that price fracking is not profitable. Thus, beginning now, this fracking appears to be ending.

Then too environmentalists are urging us to reduce our reliance on fossil fuels so perhaps the oil boom is drawing to a close. However, predictions about oil prices have been very wide of the mark.

Even though in 1986 the price of oil dropped from $87 a barrel, Sheikh Yamani, the Saudi oil minister, went on to publicly predict that oil, then $10 a barrel, would drop in half forthwith at the bottom. Yet it turned out that the price of $10 was the bottom. Oil prices climbed steadily from that point.

Thus, there should be some humility on our part in making a forecast bout the future of oil prices.

Nevertheless, as far as can be ascertained through standardization in a new fracking techniques that seem likely to occur, an increase in oil from that seems inevitable.

That should lead to a much lower oil price in the next interval. Oil prices, therefore, are likely to drop lower from here. Too, if our economy goes into a deflationary period from a collapse from the money printing, oil prices then could fall much further.

Barring that eventuality, oil prices likely will remain near the current $40-plus level, not a happy prospect for that industry or for commodity producers such as Canada.

Certainly from time to time oil prices could bounce around from here or rebound temporarily. Still many factors argue that weak to stable oil prices from here seem likely.



Bruce Whitestone