“The drop in oil because of an oil glut, I don’t understand. When it was high as a tree it was said that consumption was increased around the world, particularly China. Guess collapse occurring in Greece and elsewhere may now include China lowering consumption.”
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This is opec, led by the saudi’s, who flooded the market with excess oil to kill the Fracking boom (which theoretically is only cost effective when oil was above a certain threshold.)
The idea was for them to cause a drop in oil prices until the Fracking industry went bankrupt, causing liquidation of their assets.
It is starting to work, to our detriment. Saudi Arabia is not our friend.
They did it in the 70s.
“The idea was for them to cause a drop in oil prices until the Fracking industry went bankrupt, causing liquidation of their assets.”
The costs of obtaining oil from fracking should also be dropping. The learning or experience curve suggests that costs will fall over time the longer a firm is in business
other things being equal. Firms that have been fracking for a few years learn the “tricks of the trade”: move employees where they are the most productive, the best places to drill and so forth and so on. Also, even if firms leave the industry and prices go back up new firms can
enter and begin fracking.
But when the price goes up again, the fracking becomes feasible again, and equipment bought in bankruptcy makes it even cheaper to produce.
I used to be a commercial real estate agent. I’d see a strip mall go up for a few million and get only one tenant. It would be sold in bankruptcy to someone for a much lower price, enabling them to rent it out for much less and still make a profit.
Poof! The strip mall is full.
I appreciate you very much for following the cause and sharing the story of this oil flop business. I love the stories of the oil business out of pure sentiment and all that it has done for our country, instrumental in winning WWII.
I know nothing about the causes of ebb and flow of the commodity itself. I had high hopes for the pipeline expansion and storage industry, and refineries. The damn Saudies. Thanks so much. Rita
How would you answer #18 above, here?
I have wondered the same thing.
” The drop in oil because of an oil glut, I don’t understand.”
Fracking itself has contributed to the oil glut. Natural gas is now much cheaper than it used to be thanks to fracking, and where NG can be substituted for oil it is reducing the demand for oil. This is the market at work.