Right Wing Granny

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Tag Archives: Oil Prices

The Need For American Energy Independence

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The Hill reported Monday that OPEC (Organization of the Petroleum Exporting Countries) will be decreasing its production in October in response to declining oil prices.

The article reports:

Oil-producing alliance OPEC+ announced on Monday it will slightly lower oil production in October, eliminating the 100,000 barrel per day increase that began this month.

OPEC leaders made the decision after gathering for a meeting, where they noted the 100,000 barrel per day increase was only intended for September. OPEC produces around 28 million barrels per day.

In researching this article, I came across the following chart from oilprice.com:

Two of the reasons for the increase under President Obama were the use of fracking and the fact that the drilling was occurring on private land. President Trump was still dealing with a Congress that blocked some of his plans to increase American energy production (despite the fact that under President Trump we did achieve energy independence).

Note that the chart reflects changes–not total barrels. Under President Trump, crude oil production hit 10.038 million barrels per day (per The Western Journal). Do you think that level of production would help alleviate the price hikes that are coming because of the OPEC move to decrease oil production?

The article at The Hill continues:

The price for a crude barrel of West Texas Intermediate (WTI) oil climbed 3 percent after the announcement, reaching $90 per barrel, while Brent crude was also up 3 percent to $96 per barrel.

President Biden traveled to Saudi Arabia, the second largest OPEC member nation, over the summer as high gas prices beleaguered Americans and sunk his approval ratings.

After Biden met with Crown Prince Mohammed bin Salman and fist-bumped the Saudi leader, OPEC announced a mostly symbolic increase of 100,000 barrels per day for September.

Energy independence would stabilize oil prices for Americans and the ability to export oil would also fight inflation and improve the American economy.

Working Hard To Make A Bad Situation Worse

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On Thursday, The Western Journal posted an article about the Biden administration’s energy policy.

The article reports:

While oil prices rise due to Russia’s invasion of Ukraine, the Biden administration is delaying new federal oil and gas leases.

This comes in the midst of rising frustration from Americans over increasing gas prices. In the U.S., gas prices are averaging more than $3.50 per gallon, NPR reported. These are the highest averages seen since 2014.

The halt in federal oil and gas leases is Biden’s response to a court ruling that blocked the administration’s attempt to emphasize potential damage from greenhouse gas emissions when creating rules for polluting industries, the Associated Press reported.

I don’t claim to have inside information, but I can tell you what is going to happen next (actually, it’s already happening). President Biden will blame the rapidly rising gasoline prices on the war in Ukraine. While that is partially true, it does not take into account the fact that if America were still energy independent, the price of oil would not be as volatile as it is. Also, the amount of money coming into the U.S. Treasury due to the increased price of oil and increased American drilling would be helpful to the American economy. The President’s policy of limiting American oil production during a time of international uncertainty hurts all Americans.

The article concludes:

It’s predictable that Biden would want to halt domestic drilling on federal lands, since he promised to fight climate change and leasing federal lands for fossil fuel development would conflict with that policy.

“These fossil fuel projects are incompatible with Biden’s goal of avoiding 1.5 degrees Celsius of warming and they need to be canceled, as Biden promised to do,” Taylor McKinnon from the Center for Biological Diversity said, the AP reported.

However, Biden is also fully aware of how the Russia-Ukraine crisis is hurting oil prices.

In the midst of a fluctuating oil market that is directly hurting American pockets, Biden is halting federal drilling leases, which hurts American energy independence and keeps our gas prices tied to international tensions.

The Economic Cost Of Giving Up Energy Independence

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One of the accomplishments of the Trump administration was bringing America to a place of energy independence. The policies that led to energy independence were immediately reversed (via executive order) by the Biden administration. Americans have seen the results of that reversal in the form of higher gasoline prices at the pump and an increase in the cost of heating and cooling our homes.

Yesterday CNBC reported that U.S. oil benchmark West Texas Intermediate crude futures traded as high as $76.98, a price not seen since November 2014.

The article notes:

Oil jumped to its highest level in six years after talks between OPEC and its oil-producing allies were postponed indefinitely, with the group failing to reach an agreement on production policy for August and beyond.

On Tuesday, U.S. oil benchmark West Texas Intermediate crude futures traded as high as $76.98, a price not seen since November 2014. But by 11 a.m. on Wall Street those gains were erased, and the contract for August delivery dipped $1.60, or 2.1%, to trade at $73.56 per barrel. Brent crude hit its highest level since late 2018 before also reversing gains, and last traded 3.1% lower at $74.77 per barrel.

The article concludes:

Oil’s blistering rally this year — WTI has gained 57% during 2021 — meant that ahead of last week’s meeting many Wall Street analysts expected the group to boost production in an effort to curb the spike in prices.

“With no increase in production, the forthcoming growth in demand should see global energy markets tighten up at an even faster pace than anticipated,” analysts at TD Securities wrote in a note to clients.

“This impasse will lead to a temporary and significantly larger-than-anticipated deficit, which should fuel even higher prices for the time being. The summer breakout in oil prices is set to gather steam at a fast clip,” the firm added.

Wouldn’t it be nice if we were not dependent on the whims of OPEC.

 

A Very Mixed Blessing

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CNBC posted an article yesterday (updated today) that because OPEC has not been able to reach an agreement about oil prices with its allies (led by Russia), Saudi Arabia has cut its oil prices and increased its production. A price war is expected to follow. This is great news for consumers, but horrible news for American oil production.

The article reports:

U.S. West Texas Intermediate (WTI) crude and international benchmark Brent crude are both pacing for their worst day since 1991.

WTI plunged 18%, or $7.36, to trade at $33.92 per barrel. WTI is on pace for its second worst day on record. International benchmark Brent crude was down $8.44, or 18.7%, to trade at $36.80 per barrel. Earlier in the session WTI dropped to $30 while Brent traded as low as $31.02, both of which are the lowest levels since Feb. 2016. 

“This has turned into a scorched Earth approach by Saudi Arabia, in particular, to deal with the problem of chronic overproduction,” Again Capital’s John Kilduff said. “The Saudis are the lowest cost producer by far. There is a reckoning ahead for all other producers, especially those companies operating in the U.S shale patch.”

On Saturday, Saudi Arabia announced massive discounts to its official selling prices for April, and the nation is reportedly preparing to increase its production above the 10 million barrel per day mark, according to a Reuters report. The kingdom currently pumps 9.7 million barrels per day, but has the capacity to ramp up to 12.5 million barrels per day.

The article concludes:

“$20 oil in 2020 is coming,” Ali Khedery, formerly Exxon’s senior Middle East advisor and now CEO of U.S.-based strategy firm Dragoman Ventures, wrote Sunday on Twitter. “Huge geopolitical implications. Timely stimulus for net consumers. Catastrophic for failed/failing petro-kleptocracies Iraq, Iran, etc – may prove existential 1-2 punch when paired with COVID19.”

But others, including Eurasia Group, believe that Saudi Arabia and Russia will eventually come to an agreement.

“The most likely outcome of the failure of the Vienna talks is a limited oil price war before the two sides agree on a new deal,” analysts led by Ayham Kamel said in a note to clients Sunday. The firm puts the chances of an eventual agreement at 60%.

Vital Knowledge founder Adam Crisafulli said Sunday that oil “has become a bigger problem for markets than the coronavirus,” but also said that he does not foresee prices falling to the Jan. 2016 lows.

“Saudi Arabia can’t tolerate an oil depression – the country’s fiscal breakeven oil prices remain very high, Saudi Aramco is now a public company, and MBS’s grip on power isn’t yet absolute. As a result, the [government] won’t be so cavalier in sending oil back into the $30s (or even lower),” he said in a note to clients Sunday.

OPEC has played this game before. In the 1970’s oil crisis, OPEC boycotted America because of our support of Israel. When American energy companies responded by drilling wells to meet the need, OPEC dropped the boycott and lowered the price to put those companies out of business. I suspect there may be an attempt to do that again, but I am not sure we are as vulnerable as we were then. If America continues on the path to energy independence, our oil prices will be less vulnerable to foreign manipulation. We may have to pay a little more than the price the Saudis will drop to for our oil, but it would be worth it in the long run. Hopefully we have people currently in charge that are looking long term rather than short term.

A New Role For America

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Yahoo Finance is reporting today that America has posted its first full month as a net exporter of crude and petroleum products since government records began in 1949.

The article reports:

The nation exported 89,000 barrels a day more than it imported in September, according to data from the Energy Information Administration Friday. While the U.S. has previously reported net exports on a weekly basis, today’s figures mark a key milestone that few would have predicted just a decade ago, before the onset of the shale boom.

President Donald Trump has touted American energy independence, saying that the nation is moving away from relying on foreign oil. While the net exports show decreasing reliance on imports, the U.S. still continues to buy heavy crude oil from other nations to meet the needs of its refineries. It also buys refined products when they are available for a lower cost from foreign suppliers.

“The U.S. return to being a net exporter serves to remind how the oil industry can deliver surprises — in this case, the shale oil revolution – that upend global oil prices, production, and trade flows,” said Bob McNally, a former energy adviser to President George W. Bush and president of the consulting firm Rapidan Energy Group.

Soaring output from shale deposits led by the Permian Basin of West Texas and New Mexico has been in main driver of the transition — but America’s status as a net exporter may be fragile. Many Texas wildcatters are predicting a rapid decline in production growth next year, while some Democratic contenders for the White House have called for a ban on fracking — the controversial drilling technique that unleashed the boom.

The article concludes:

Analysts at Rystad Energy said this week the U.S. is only months away from achieving energy independence, citing surging oil and gas output as well as the growth of renewables.

“Going forward, the United States will be energy independent on a monthly basis, and by 2030 total primary energy production will outpace primary energy demand by about 30%,” said Sindre Knutsson, vice president of Rystad Energy’s gas markets team.

So what does energy independence mean? It means that our foreign policy is no longer determined by our energy needs, but by forming alliances with countries with similar goals. It means that a change in the world production of oil will not result in the gas lines we saw in America in the 1970’s. It means that if Russia plays politics with the energy it supplies to Europe, we have the ability to step in and fill the need–ending the constant threat that Russia will cut off Europe’s fuel supply in the dead of winter. It means that in case of war, our ships and airplanes will have the fuel they need to fight.

Energy independence is a big deal. It is a goal that was seemingly unachievable until President Trump made it a priority. Thank you, Mr. President.

If You Wondered Why Energy Independence Is Important

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The Wall Street Journal posted an article yesterday about the drone attack on Saudi oil fields. The Iran-allied Houthi rebels in neighboring Yemen have claimed credit for the attack.

The article reports:

The production shutdown amounts to a loss of about 5.7 million barrels a day, the kingdom’s national oil company said, roughly 5% of the world’s daily production of crude oil.

Officials said they hoped to restore production to its regular level of 9.8 million barrels a day by Monday. Energy Minister Prince Abdulaziz bin Salman said lost production would be offset through supplies of oil already on hand.

The strikes mark the latest in a series of attacks on the country’s petroleum assets in recent months, as tensions rise among Iran and its proxies like the Houthis, and the U.S. and partners like Saudi Arabia. The attacks could drive up oil prices if the Saudis can’t turn production back on quickly and potentially rattle investor confidence in an initial public offering of Saudi Aramco, the national oil company.

The article concludes:

The Yemen war is a central front in a new and more aggressive foreign policy overseen by Prince Mohammed, who launched the intervention with a coalition of allied states in 2015. Under the prince’s watch, the kingdom also applied a blockade on neighboring Qatar, detained Lebanon’s prime minister, and sent a team of men to kill exiled journalist Jamal Khashoggi in Istanbul in 2018.

A conservative kingdom with a Sunni Muslim majority, Saudi Arabia has been an opponent of Iran in a struggle for power across the broader Middle East since the 1979 revolution that toppled Iran’s monarchy.

The attacks on Aramco’s facilities are poorly timed for Aramco’s coming IPO and pose a challenge to oil officials after a changing of the guard in their leadership. Aramco last week picked seven international banks to help it list on Saudi Arabia’s domestic exchange, an IPO that could value the company at about $2 trillion dollars and come before the end of the year.

There are a lot of things going on behind the scenes here. This is part of the conflict between Sunni and Shiite Muslims. At their core, both the Saudis and the Iranians want to bring back the former caliphate. The Ottoman Empire (which was that caliphate) existed until the early 1900’s. Many Muslims want that Empire restored. The argument is over who will rule the caliphate when it is established. Al Qaeda and the Muslim Brotherhood are players in this conflict, as is ISIS. Jamal Khashoggi was a part of the Muslim Brotherhood. Descriptions of him as simply a journalist were misleading. Another part of this puzzle is the fact that Saudi Arabia is drawing closer to aligning with Israel because of the fear of a nuclear Iran. That also would be a cause for increased aggression from Iran.

Generally speaking, any terrorism that goes on in the Middle East can be traced back to Iran. They have been training and funding terrorists since the Iranian Revolution in 1979.

I have no idea what impact this will have on world oil prices. I do know that Saudi Arabia will work to repair the damage as soon as possible. I have no doubt that Iran is violating the sanctions on its oil exports, so if the price of oil rises significantly, Iran may be able to pull itself out of its current economic difficulties and calm its population. America will continue to prosper as oil prices rise because we are now a net exporter of oil rather than a net importer. Because of the policies of President Trump, we are in a very different situation than we were during the oil crisis of the 1970’s.

The Power Of Energy Independence

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America is now energy independent. We now export oil and natural gas. This gives us some degree of leverage against what used to be the monopoly held by OPEC (The Organization of the Petroleum Exporting Countries). Yesterday Townhall posted an article that illustrates the influence America now wields because of its energy independence.

The article reports:

In the midst of the oil price spike scare, President Donald Trump warned the Organization of Petroleum Exporting Countries (OPEC) on Monday to “take it easy” on raising the price of oil.

This is the tweet:

So what were the consequences of this tweet?

The article reports:

Since this morning, the price of crude oil dropped by more than a dollar per barrel in just an hour. Bloomberg reported today that New York saw a 2.7 percent decrease in oil prices, which is the lowest drop in two weeks.

“Analysts attributed the price rise to improving trade talks between the U.S. and China, unrest in Nigeria and Venezuela, Libya’s refusal to restart production in the El Sharara oil field and continued efforts to curtail supplies by OPEC and Russia,” according to The Daily Caller.

When you don’t have to depend on OPEC for oil to keep your economy going, you have much more power to negotiate oil prices.

Some Good News For Commuters

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USA Today posted an article yesterday about gasoline prices. I just got back from California where the price of a gallon of gas was about $4. It’s really good to be back in North Carolina!

The article reports:

Gas prices are expected to plunge sharply in the final days leading up to the midterm elections, potentially nearing $2 a gallon at some stations in low-tax states.

The sudden respite at the pump comes from sharply lower oil prices and declining wholesale gasoline prices.

Oil Price Information Service analyst Tom Kloza said it could amount to a “colossal collapse” in prices for consumers: from a $2.78 national average on Friday to as low as $2.50 by Tuesday.

“There’s the possibility you could see some prices flirt with $2 a gallon in the next 10 days or so in some of the low-tax areas,” Kloza said. “For now it’s going to be a great break.”

The break comes after gas approached four-year highs in October, topping a national average of $2.90 a gallon at one point.

Prices have already fallen by 6 cents per gallon over the last week, according to AAA. But they remain 27 cents higher than a year ago.

The increase in gasoline prices was one of the factors in the housing bubble collapse in 2008. In four years, the price of a gallon of gasoline had gone from an average of $1.85 a gallon to an average of $3.25 a gallon. If you commute thirty miles to work, that could mean as much as $3.00 a day added to the cost of your commute plus the cost of any recreational driving. To some people working with a tight budget, the increase was the difference between being able to pay the mortgage and not being able to pay the mortgage.

The article continues:

U.S. oil prices have fallen about $13 per barrel from their October high, trading at around $63 on Friday morning.

One key reason: Rising oil production throughout the world is causing stockpiles to build up.

The Organization of the Petroleum Exporting Countries’ output has reached a two-year high, with leading OPEC member Saudi Arabia’s output “near its all-time high,” Jefferies analyst Jason Gammel said in a research note. American oil output has also spiked.

“This surge has driven the market into oversupply,” pushing prices lower, Gammel said.

A decrease in gasoline prices is good news for all consumers.

They Were For It Before They Were Against It

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On Thursday, Investor’s Business Daily posted an article about the rising price of gasoline. It is becoming obvious that the Democrats plan to blame President Trump for the increased cost and use the issue in the 2018 mid-term elections. Well, not so fast.

The article reminds us that in the past the Democrats have supported increasing gasoline prices in the name of the phony science of global warming.

The article reminds us:

Sen. Minority Leader Charles Schumer and other Democrats plan to use this price spike to blast President Trump and, hopefully, improve their election chances in November.

“President Trump’s reckless decision to pull out of the Iran deal has led to higher oil prices,” Schumer said. “These higher oil prices are translating directly to soaring gas prices, something we know disproportionately hurts middle and lower income people.”

But Schumer, as well as the reporters covering him, should know that the high gas prices are the result of three factors that are beyond Trump’s control.

One is the fact that OPEC has tightened its production quotas to counter the huge increase in U.S. oil production thanks to the fracking revolution. Trump has been trying to boost production still more.

So what have Democrats said about gasoline prices in the past? The article reports:

As recently as 2015, Democrats were pushing to nearly double the federal gasoline tax. At the time, House Minority Leader Nancy Pelosi said that it was the perfect time to do so because “if there’s ever going to be an opportunity to raise the gas tax, the time when gas prices are so low — oil prices are so low — is the time to do it.”

Democrats in California pushed through a 12-cent-per-gallon hike in the state’s gas tax last year that Republicans are vowing to roll back if they can.

…At the same time, Democrats have pledged to impose a tax on carbon emissions of around $50 per ton of CO2 — which would go up each year at a rate faster than inflation — to combat “climate change.”

Schumer himself promised to enact a carbon tax if Hillary Clinton won and Democrats regained control of the Senate in the 2016 elections.

Well, guess what? A carbon tax of that magnitude would sharply raise gasoline prices. A report out of the University of Michigan last fall concluded that a carbon tax of $40 per ton would hike gasoline prices by 36 cents a gallon.

Higher gasoline prices impact everyone who drives a car, a truck, or a motorcycle, whether they are rich or poor. To people who depend on their car to get them to work every day, the increased price of gasoline can mean the difference between taking a family vacation or staying home. It can mean the difference between taking the family out to dinner occasionally or eating at home. Financially and mentally, the price of gasoline matters. It is unfortunate that rather than work with the President to help bring the price of gasoline down and bring financial relief to Americans, the Democrats are choosing to make gasoline prices a political issue.

Reaping The Benefits Of America’s Energy Development

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On Monday, Investor’s Business Daily posted a commentary on the current global oil market. The commentary noted that Russia has been working with OPEC (Organization of the Petroleum Exporting Countries) to cut oil production in an effort to keep oil prices artificially high (after all– it worked in the 1970’s).

The commentary reports:

Despite an uptick in oil prices, a closer look at the oil market unveils the real winner of curtailing crude exports: America. U.S. oil output broke through the 10 million barrels a day mark for the first time in half a century. And, according to a recent statement by the Director of the International Energy Agency, it could reach a record of 12.1 million barrels a day in 2023.

Although the price of a barrel of oil has somewhat retreated from the January $70 heights, it is still $10 above its level a year ago and more than double what it was during the price collapse in early 2016. This has been helped along by phenomenal discipline within OPEC+, as the agreement on production cuts between OPEC, Russia and nine more exporting countries is informally known. Apparently compliance has reached a surprising 138% — exporters have made bigger cuts than initially pledged.

The details of this show that one reason for the drop in production is the collapse of Venezuela‘s oil industry. Last year oil production in Venezuela shrunk by 20 percent– roughly 500,000 barrels a day. When the government nationalized the oil rigs in Venezuela, they had no idea how to maintain the rigs and maintain production, so production has continued to drop since that takeover. What has happened (and is happening) in Venezuela is a living example of the fact that socialism does not work.

The commentary concludes:

Arguably, leaders of the Gulf states and Russia are falling victim to politics, a field in which it’s better to be seen doing something than nothing. Especially when no one is sure what (if anything) would work. But who is the biggest economic winner in this game? Ironically, it’s America yet again.

Each time Saudi Arabia and their allies restrict exports, they prop up the price and create a vacant market share which then gives a boost to those producers outside the agreement that are not bound by quotas. The biggest among them is the United States. Naturally, thousands of American companies are keen for a free ride.

All of that is happening already. The U.S. has just overtaken Saudi Arabia in oil production and is expected to rival Russia soon. No wonder U.S. oil companies were expected to be especially cordial with the Saudi delegation during the princely visit. But one might imagine that on the sidelines of the meetings many Saudis will be scratching their heads and wondering how and why did they get themselves into this pickle.

America needs to be energy independent. It allows us to be in control of the fossil fuel that is the backbone of the current world economy. The 1970’s proved that was important.

The Worldwide Impact Of Developing America’s Energy Resources

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With the lifting of many of the restrictions on domestic oil drilling (and fracking) in America, the impact of American oil and natural gas on the world market has grown. Today Reuters posted an article about the impact of American energy on the global oil market.

The article reports:

Surging shale production is poised to push U.S. oil output to more than 10 million barrels per day – toppling a record set in 1970 and crossing a threshold few could have imagined even a decade ago.

So what does this mean?

The article explains:

The economic and political impacts of soaring U.S. output are breathtaking, cutting the nation’s oil imports by a fifth over a decade, providing high-paying jobs in rural communities and lowering consumer prices for domestic gasoline by 37 percent from a 2008 peak.

…“It has had incredibly positive impacts for the U.S. economy, for the workforce and even our reduced carbon footprint” as shale natural gas has displaced coal at power plants, said John England, head of consultancy Deloitte’s U.S. energy and resources practice.

The article notes that in an attempt to stop American energy development, OPEC (Organization of the Petroleum Exporting Countries) tried to discourage shale production of oil in America by flooding the market with oil (Saudi Arabia also played a role in financing movies and advertising containing misinformation about fracking).

The article notes:

The cartel of oil-producing nations backed down in November 2016 and enacted production cuts amid pressure from their own members over low prices – which had plunged to below $27 earlier that year from more than $100 a barrel in 2014.

Shale producers won the price war through aggressive cost-cutting and rapid advances in drilling technology. Oil now trades above $64 a barrel, enough for many U.S. producers to finance both expanded drilling and dividends for shareholders.

The article also  mentions American oil exports:

Efficiencies spurred by the battle with OPEC – including faster drilling, better well designs and more fracking – helped U.S. firms produce enough oil to successfully lobby for the repeal of a ban on oil exports. In late 2015, Congress overturned the prohibition it had imposed following OPEC’s 1973 embargo.

The United States now exports up to 1.7 million barrels per day of crude, and this year will have the capacity to export 3.8 billion cubic feet per day of natural gas. Terminals conceived for importing liquefied natural gas have now been overhauled to allow exports.

That export demand, along with surging production in remote locations such as West Texas and North Dakota, has led to a boom in U.S. pipeline construction. Firms including Kinder Morgan and Enterprise Products Partners added 26,000 miles of liquids pipelines in the five years between 2012 and 2016, according to the Pipeline and Hazardous Materials Safety Administration. Several more multi-billion-dollar pipeline projects are on the drawing board.

Energy independence is important for America. Total energy independence will have a very positive impact on our foreign policy. Because tyrannical regimes in the Middle East have traditionally controlled the oil supply to the rest of the world, western countries have been required to support governments they should not be supporting in order to keep the oil flooding. Russia is another country that has used its pipelines to Europe as a way to control certain European countries. Energy independence will give America a degree of freedom we have not had for a long time. Hopefully we will use that freedom wisely.

What American Energy Independence Means

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Yesterday Investor’s Business Daily posted an editorial about the current price of oil. Any person familiar with basic economic theory understands the law of supply and demand. When there is a  lot of something, the price goes down. When something is scarce, the price goes up. Some of our recent political leaders missed this point, but we are now seeing the principle of supply and demand at work in the oil industry.

The editorial reports:

Energy: Last week Royal Dutch Shell (RDSA) told investors that it expects oil prices to be “lower forever.” We’re still waiting for all those people who were only recently complaining about higher-forever oil prices to admit their mistake.

It wasn’t that long ago that President Obama was mocking Republicans for their “three-point plan for $2 gas: Step one is drill, step two is drill, and step three is keeping drilling.”

He went on to say that “the American people aren’t stupid. They know that’s not a plan.”

Renewable energy, he said, was the only way to solve the “problem” of high oil prices.

Of course renewable energy came with numerous government subsidies and taxes on ‘old energy.’

The editorial explains the results of ‘drill, baby, drill’:

Domestic oil production was skyrocketing even as Obama made those remarks — thanks to advanced drilling technologies that have opened up vast new domestic supplies to production.

The Energy Information Administration projects that, next year, U.S. oil production will average almost 10 billion barrels a day, which would beat the previous record of 9.6 billion in 1970. What’s more, a quarter of this production is coming from one oil field: the Permian Basin in West Texas.

Those “obscene” industry profits? They’ve fallen as well. ExxonMobil’s (XOM) revenue in 2016 was about half what it was in 2011. In its most recent quarter, the company earned $3.4 billion — or 78 cents share. In the same quarter in 2011 it earned $10.7 billion, or $2.18 a share.

Oil companies for a time even had to borrow money to pay dividends.

Low oil prices have also led to a sharp drop in the taxes paid by the industry to the federal government. In 2016, the federal government collected about $6 billion in royalties, rental costs, and other fees from oil production on federal lands. That’s down from $14 billion in 2013.

Now Shell is saying that it’s bracing for low oil prices forever.

Lower energy prices have a positive impact on the American economy–consumers have extra money to spend, it is cheaper to manufacture goods here, and tourist-related industries thrive when Americans can travel and not worry about the cost of fuel.

The article concludes:

Even if the current oil glut causes some pain to the oil industry and crimps tax revenues, it is good news for the economy, since lower energy prices reduce the cost of doing business across the board, and make the U.S. a more-attractive place to do business on a global scale.

But it does raise some important questions: Where are those people who were screaming about Big Oil? Why aren’t they being asked to explain how they could have been so wrong? And just who, exactly, was being stupid?

Economic principles work–every time they are allowed to.

Losing Your Monopoly…Slowly…

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Investor’s Business Daily posted an article today about the recent influences on oil prices.

The article reports:

As the mad dash back to the U.S. oil patch has even global oil giants like Chevron (CVX) and Exxon Mobil (XOM) turning their focus to shale, U.S. oil production is on pace to exceed peak production levels in July and could hit 10 million barrels per day in August.

Those milestones loom as OPEC and top non-OPEC producers weigh whether to extend by another six months their agreement to reduce output by 1.8 million barrels a day. The cartel’s next meeting is scheduled for May 25.

The initial pact reached late last year lifted oil prices and encouraged U.S. producers to pump more oil. The extra supply has since weighed on prices, which have fallen more than 10% since the start of the year. But hedges allowed U.S. firms to lock in the higher, earlier prices, and they have continued ramping up output.

U.S. crude futures sank 4.8% to settle at $45.52 a barrel on Thursday, plunging to a five-month low and dropping below the price seen before OPEC reached its production pact in late November.

The result of developing American energy independence by developing America‘s fossil fuel resources is lower fuel costs for Americans, better national security for Americans, and a better negotiating position with the ‘oil bullies’ of the world.

The chart below illustrates what is happening to the worldwide oil market:

There may come a day in the future when green energy is the dominant energy source, but right now the world economy is essentially based on fossil fuel. Until someone comes along and invents a green energy source that can provide energy 24 hours a day and be cost effective, the world will revolve on fossil fuel. Because our economy is based on fossil fuel, it is good to have some leverage against those who are able to deny their citizens basic human rights without being challenged because they have a monopoly on fossil fuel.

 

 

 

The Impact Of American Oil On The World Market

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Breitbart.com reported yesterday that according to a draft of its long-term strategy report, The Organization of the Petroleum Exporting Countries (OPEC) has admitted that their war on shale oil production in America has failed.

The article reports:

The current international price standard, called “Brent crude” has dropped from about $115 a barrel in June 2014 to $62 today. That is a direct result of the American shale-fracking boom adding 4.5 million barrels of oil per day to the U.S. market in the last 6 years. The U.S. standard, called “West Texas Intermediate” (WTI), sells at $57 a barrel, almost a 10 percent discount.

With revenues plummeting, most OPEC members are in a financial crisis and are forced to increase production from last year and flood the world market to financially survive.

There are a few interesting things in this article. First of all, developing America’s oil resources and decreasing America’s dependence on foreign oil will have a serious impact on American foreign policy. It should eventually allow America to support freedom and human rights in places where these are not currently practiced.

Second of all, there is an economic benefit to developing oil resources in America–not only does it bring down the cost of gasoline internationally, if the exporting of these products is allowed, it will strengthen the American economy.

Thirdly, it is interesting that OPEC did everything it could to discourage American oil production. The admission of that fact should give pause to those people who blindly signed on to the anti-fracking movement without checking their facts.

America is capable of leading the world economically. We are a country rich in resources and rich in talent. What we have lost in recent years is our morality and our work ethic. We need to regain both of those in order to achieve economic success.

This Is A Very Interesting Statement

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Fox Business posted a story today by Maria Bartiromo. The story included an amazing statement by Saudi billionaire businessman Prince Alwaleed bin Talal. The Prince stated that we will never see $100 a barrel oil again.

The article includes the following quote:

Saudi Arabia and all of the countries were caught off guard. No one anticipated it was going to happen. Anyone who says they anticipated this 50% drop (in price) is not saying the truth.

Because the minister of oil in Saudi Arabia just in July publicly said $100 is a good price for consumers and producers. And less than six months later, the price of oil collapses 50%.

Having said that, the decision to not reduce production was prudent, smart and shrewd. Because had Saudi Arabia cut its production by 1 or 2 million barrels, that 1 or 2 million would have been produced by others. Which means Saudi Arabia would have had two negatives, less oil produced, and lower prices. So, at least you got slammed and slapped on the face from one angle, which is the reduction of the price of oil, but not the reduction of production.

This is an interesting situation–the Saudis kept the production up so the price would go down. This seriously impacted the economies of Iran, Russia and Venezuela, and indirectly Cuba. It also made oil production in America less attractive–smaller profits. If the Saudis cut production to raise the price, American production comes back up and reduces the price. If the Saudis keep the price low, American production will be less, but will still exist.

I love the idea that we will never again see $100 a barrel oil. I am tired of being blackmailed by the Middle East oil producers. Maybe now we can stop funding terrorism.

Behind The Drop In Oil Prices

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Steven Hayward posted an article at Power Line today about the recent drop in oil prices. As of 4 pm today, oil was listed at about $58 a barrel. So what does this mean?

The article reports:

I decided to reach out to the CEO of a very successful private oil exploration company for his inside opinion, and this is what he tells Power Line:

Our Rate of Return (ROR) drops to 10% on our wells at $55 oil.  However, this assumption assumes no drop in costs to drill wells and no contraction in the large differential ($10 to $12 per barrel) between Bakken and WTI oil.  In reality our ROR would actually be above 10% at $55 WTI oil price as our costs to drill would also come down.  There are plenty of drilling locations that would have above 10% ROR at $40 oil.  Even more drilling locations would require $70, $80, or $90 oil prices for that ROR.  Of course, drilling will slow down long before you get down to a 10% ROR.  Most will want at least a 20% ROR.  Of course the quality of the operator matters in addition to the drilling location. . .

Bottom line is that the Saudis want to chill investment in new oil supply to help protect OPEC’s future.  In round numbers we have had about 5 MBOPD increase in world oil demand over the last 5 or 6 years.  Over the same time period US oil production has grown from nearly 4 MBOPD (from 5 to 9 MBOPD) — 80% of the increase in WORLD demand!  This is NOT good for OPEC.  I suspect that we will have ugly oil prices ($60 – $75) for around a year as that is long enough to stop many current oil supply investments and, more importantly, serve to chill the appetite for future large investments in oil supply growth (deep water, arctic, marginal shale, marginal tar sands, etc) which is the Saudi goal in my opinion.  I do not believe that the current price ($65) is a sustainable price going forward.  It would not encourage enough new supply to balance world demand which itself would be goosed upwards with the lower prices.  I suspect that after this ugly price period ends, we likely see oil bouncing around the $75 to $95 range or something like that.

Of course all of this depends on the state of world economy which has many significant challenges such as at the required unwind, or more likely significant revamping, of the unsustainable entitlement states over the next two decades.  I personally believe that the Euro currency was a very idea from the start and is damaging for Europe and unsustainable as an institution.  The unwind of the Euro within the next 5 or 10 years could also cause significant economic headwinds for the world economy.

 This game has been played before–when America is reaching energy independence, lower the price to avoid further exploration. We are fools if we fall for this. As soon as OPEC thinks America is not interested in developing its own resources, the price will go back up to where it has been in recent years. Regardless of the price, energy independence is always a good idea for security reasons. Energy independence also frees America up to support democracies in the Middle East rather than dictatorships.

The Unintended Consequences Of American Oil Production

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The Wall Street Journal today included an article by Daniel Yergin about the falling oil prices. The Organization of the Petroleum Exporting Countries (OPEC) met Thursday and decided not to cut oil production. That is a major policy change and will have worldwide impact. The demand for oil is no longer the basis for OPEC’s decisions–now the deciding factors are the surge in U.S. oil production and the new oil supply from Canada.

The article reports:

Since 2008—when fear of “peak oil,” after which global output would supposedly decline, was the dominant motif—U.S. oil production has risen 80%, to nine million barrels daily. The U.S. increase alone is greater than the output of every OPEC country except Saudi Arabia.

The world has experienced sudden supply gushers before. In the early 1930s, a flood of oil from East Texas drove prices down to 10 cents a barrel—and desperate gas station owners offered chickens as premiums to bring in customers. In the late 1950s, the rapidly swelling flow of Mideast oil led to price cuts that triggered the formation of OPEC.

Oil is currently selling at about $69 per barrel after hovering around $100 per barrel for the past three years. The shale oil being drilled in America is still economical to produce with prices between $50 and $69 per barrel, so the lower prices will not drive America from the world market.

So what are the international implications of cheap oil? The Russian budget is funded over 40% by oil, but Putin has built up a reserve of a few hundred billion dollars that will help Russia cope with the falling oil prices. Venezuela and Iran are also negatively impacted by falling oil prices. Just for the record, the building of the Keystone XL Pipeline would have a severe negative impact on the Venezuelan economy–the Gulf Coast refineries would replace the heavy oil from Venezuela with the Canadian oil.

There is, of course, the possibility that OPEC could change its mind in the Spring and cut output, but even if they were to do that, they would only be hurting themselves, as Canada and the United States would simply increase their production to make up the difference.

Trouble In Paradise

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The Middle East oil countries have done very well during the past thirty or so years. The have combined to form the Organization of the Petroleum Exporting Countries (OPEC) and have raised the price of oil from somewhere near $5 a barrel to over $100 a barrel (although the cost of oil is currently dropping).

The Wall Street Journal reported today that as the Western countries begin to develop their oil resources, OPEC members are fighting over production quotas and prices.

The article reports:

But even modest cooperation between many members has broken down, and Saudi Arabia, in particular, has moved to act on its own. While it cut output earlier this summer, other members didn’t go along. Since then, it has dropped its prices.

Each member has a different tolerance for lower prices. Kuwait, the United Arab Emirates and Saudi Arabia generally don’t need prices quite as high as Iran and Venezuela to keep their budgets in the black.

Late Friday, Venezuelan Foreign Minister Rafael Ramirez, who represents Caracas in the group, called for an urgent meeting to tackle falling prices. The group’s next regular meeting is set for late next month.

But on Sunday, Ali al-Omair, Kuwait’s oil minister, said there had been no invitation for such a meeting, suggesting the group would need to stomach lower prices. He said there was a natural floor to how low prices could fall—at about $76 to $77 per barrel—near what he said was the average production costs per barrel in Russia and the U.S.

The history of oil prices has often been that when the Middle East begins to drop their prices, Americans stop looking for cheaper oil in their own country. Considering the current instability in the Middle East in the OPEC nations, that would be a big mistake.

America needs to be energy independent for both economic and security reasons. It is time to develop our own resources.

Is Anyone In Congress Reading The Constitution ?

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Yesterday The Hill reported that six House Democrats, including Dennis Kucinich, have proposed a “Reasonable Profits Board” to control gas profits. When are they going to propose a “Reasonable Profits Board” to control movie industry profits, sports organization profits, college profits, etc.? Why are they only picking on the oil industry? Because they have an ulterior motive. When you read down the article a bit, you find it.

The article reports:

According to the bill, a windfall tax of 50 percent would be applied when the sale of oil or gas leads to a profit of between 100 percent and 102 percent of a reasonable profit. The windfall tax would jump to 75 percent when the profit is between 102 and 105 percent of a reasonable profit, and above that, the windfall tax would be 100 percent. The bill also specifies that the oil-and-gas companies, as the seller, would have to pay this tax.

Kucinich said these tax revenues would be used to fund alternative transportation programs when oil-and-gas prices spike.

What is going on here? It’s simple. This is using class warfare to channel the anger that will occur when oil and gas prices go up because of America’s energy policies. Why am I blaming America’s energy policies? The Obama Administration just ended the Keystone Pipeline project, which would have helped with America’s energy independence and helped keep gas and oil prices stable. Please note that the federal tax on gasoline is 18 cents per gallon. The government does nothing to earn that tax money–no exploration, no scientific research, etc., yet they collect money every time an American fills up his gas tank.

The government does not have the right to judge whether any corporation’s profits are reasonable or not. Blaming the oil companies for the Administration’s failure to encourage domestic energy production is simply wrong. At some point the American people will wake up and see what is going on if they haven’t already. The people proposing this should be voted out of the House of Representatives this year!

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