Want lower gas prices? Drill, Baby Drill! Or Not.

[Timsup2nothin]

Of course. I didn't say it explicitly but that's why I said that persistently low prices are probably more a sign of global economic weakness than anything else. Lower demand could also be caused by greater efficiency in oil use and renewable energy development, but that's much more of a long-term trend that wouldn't be very obvious on short time scales.

More of a factor than you might think, already. I think the traditional reality that oil prices are an accurate reflection of economic activity might be too far gone to be reliable any more.

The shift to renewable sources is still to small to be having much effect, but I think you underestimate greater efficiency in oil use and leave out the shift backwards from oil to coal. With a rapidly growing share of heavy industry being shifted into countries where the government doesn't really care if the people can breathe or not oil burning on a global scale does become much more efficient, and is also replaced in significant measure by coal.

 

[onejayhawk]

I saw $2.00/gal fuel today. It was E85, so are tax money is at work.

J

 

[onejayhawk]

The ramp-up in US oil production over the last three years has been truly impressive. However, low oil prices are toxic to producers of oil that is more expensive to extract (including unconventional sources like shale oil). The companies that are behind most of the shale oil extraction have had expenses far in excess of revenues for quite a while even though oil prices were in the $100/bbl neighborhood until recently. And they are forced to keep drilling at a rapid pace by the enormous decline rates in shale wells (>50% in the first year, less but still bad after that). I don't see how they can keep going for long at $60-70/bbl.

As far as I can tell that's more or less what Saudi Arabia and other Gulf states have in mind: they still have enough conventional oil remaining that they can refuse to cut production, sell at lower prices than their competitors can afford (US and Canadian unconventional oil, Russia, other OPEC states including Iran and Venezuela, and so forth) and gain a competitive advantage worth more than the extra revenue they're forgoing. Of course weaknesses in emerging markets, the Eurozone, and Japan are keeping demand low too.

Anyway, enjoy the low oil prices while they last! Of course if they last very long that'll probably be more a sign of global economic weakness than anything positive.

WSJ in this vein:
online.wsj.com/articles/daniel-yergin-the-global-shakeout-from-plunging-oil-141738689

The biggest impact of lower oil prices on future output may well be not in North America, where many people are looking for it, but in the rest of the world. Even before the collapse in prices, major oil and natural-gas companies had become preoccupied with the continually rising costs of developing new supply and were heeding the call from investors for “capital discipline.”

This price decline will turn this preoccupation into an obsession. The result will be a slowdown and reduction in major new investments around the world. The losers will be the nations trying to woo investment for new oil and natural-gas projects. Countries in Africa, Asia and Latin America are already finding that fewer companies are showing up to bid for new opportunities, and such bids that are proffered will be lower, perhaps much lower, than governments were expecting. The days are past when these countries can insist on very tough terms in taxes, royalties and other requirements that drive up costs and cause delay.​

J

 

[El_Machinae]

Yeah, a couple weeks ago, the Economist was basically approaching the story from the angle that it's classic monopolist strategy. You occasionally drop the price in order to crush out all the alternative investors. You don't even need to do it for very long, just enough to wipe out the optimists. The pessimists learn to never really try again. Then you can jack up prices again

 

[onejayhawk]

I saw $1.93 for E85 today. Regular is $2.36.

The WSJ article mentions that several countries fund much of the government through oil exports, notably Russia and Venezuela. I am wondering how much of an impact the recent ramp up in the USA has had on our budget.

J

 

[Cutlass]

For the US budget, not much. But several of the states are much more oil revenue dependent. So in those places it's an impact that is felt.

 

[onejayhawk]

For the US budget, not much. But several of the states are much more oil revenue dependent. So in those places it's an impact that is felt.

We need more drilling on Federal lands!

Actually, there will likely be several bills to that effect next month, in addition to the pipeline.

J

 

[GenMarshall]

We need more drilling on Federal lands!

Actually, there will likely be several bills to that effect next month, in addition to the pipeline.

J

Given his diehard opposition to the pipeline, I woulnt be supprised if Obama vetoes them.

 

[El_Machinae]

We need more drilling on Federal lands!

I'm always astounded that the conservative movement is full of people who treat dividend-paying ecological trust funds the same way Trust Fund Babies seem to. You'd think they'd view an ecological trust fund the same way a fiscally conservative person would treat a dividend-paying Trust Fund.

 

[Timsup2nothin]

Given his diehard opposition to the pipeline, I woulnt be supprised if Obama vetoes them.

Given that most of them will probably be suicide bills intended to die on his desk I would be surprised if he doesn't.

 

[bhsup]

$2.34/gal today. That is $1.00/gal more expensive than when I started driving 30 years ago and paid $1.35/gal. $1 in 30 years.

Thanks, Obama! (he says with uncharacteristic sincerity)

 

[onejayhawk]

Given his diehard opposition to the pipeline, I woulnt be supprised if Obama vetoes them.

I never understood any of the pipeline opponents positions, but that is another thread. Drilling on Federal lands would produce highly paid jobs, revenue and reduce strain on some budget items. If he vetoes that he will need a good reason.

J

 

[Timsup2nothin]

I never understood any of the pipeline opponents positions, but that is another thread. Drilling on Federal lands would produce highly paid jobs, revenue and reduce strain on some budget items. If he vetoes that he will need a good reason.

J

You mean besides it being federal land?

 

[onejayhawk]

You mean besides it being federal land?

I said a good reason. That isn't even a poor reason.

J

 

[cardgame]

I can see it if it's a national park, maybe. But can't they just go around?

 

[trader/warrior]

Over here we're drilling as fast as we can, yet still apparently have the worlds highest gas prices at $9.26 a gallon. Strange that. Maybe "Refine baby, refine" would be more correct, or "subsidize baby, subsidize".

One funny thing about carbon-fuels is that people seem to entirely blame the end user rather than the producers for its harm on the world. It wasn't like that when we got the oil from whales!

 

[onejayhawk]

$2.34/gal today. That is $1.00/gal more expensive than when I started driving 30 years ago and paid $1.35/gal. $1 in 30 years.

Thanks, Obama! (he says with uncharacteristic sincerity)

Thank fracking. There has been a huge ramp up of US production since it became available.

Over here we're drilling as fast as we can, yet still apparently have the worlds highest gas prices at $9.26 a gallon. Strange that. Maybe "Refine baby, refine" would be more correct, or "subsidize baby, subsidize".

One funny thing about carbon-fuels is that people seem to entirely blame the end user rather than the producers for its harm on the world. It wasn't like that when we got the oil from whales!

No fracking kidding.

J

 

[Kaitzilla]

Another gloating article came out today.

http://www.foxnews.com/politics/2015/01/13/dems-change-tune-after-mocking-gop-for-drill-baby-drill/

Back when gas topped $4 a gallon, Republicans chanted "drill, baby, drill" at rallies across the country -- arguing more domestic drilling would increase supplies, reduce dependence on foreign oil and boost the U.S. economy.

Democrats, almost universally, mocked the GOP plan. In 2012, President Obama called it "a slogan, a gimmick, and a bumper sticker ... not a strategy."

"They were waving their three-point plans for $2-a-gallon gas," Obama told a laughing audience during an energy speech in Washington. "You remember that? Drill, baby, drill. We were going through all that. And none of it was really going to do anything to solve the problem."

"'Drill, baby, drill' won't lower gas prices today or tomorrow," Rep. Janice Hahn, D-Calif., echoed on the floor of Congress in 2012. "But it will fuel our addiction to fossil fuel."

Today, Democrats are singing a different tune, as increased domestic drilling has led to a record supply of domestic crude, put some $100 billion into the pockets of U.S. consumers and sent world oil prices tumbling.

The price of a gallon of regular gasoline on Monday was $2.13 nationwide, and below $2 in 18 states.

"Of course [Obama] was wrong. We've seen oil prices fall internationally now by half since last June," said American Enterprise Institute economist Ben Zycher. "The U.S. is now the biggest oil and gas producer in the world, or almost that, and the effect has been to drive prices down as we've seen."

Most of the domestic increase is due to "fracking" for tight oil in shale deposits across the U.S., as well as advances in directional drilling, where numerous pipelines diverge from a single platform in numerous directions, for a large cost savings.

But the gains, according to oil experts, come off private, not federal, lands.

Oil production on federal lands -- those under the president's control -- fell 6 percent since 2009, according to the federal Energy Information Administration, while production on private lands increased 61 percent.

Nevertheless, Obama is touting the lower prices, which injected billions into the improving U.S. economy.

"America is the No. 1 producer of oil, No. 1 producer of gas. It's helping to save drivers $1.10 a gallon at the pump over this time last year," the president told a crowd last week in Detroit.

I wonder what others things Democrats are 100% wrong about.

 

[illram]

Well to be fair, falling demand helped quite a bit, along with the Saudis playing along and not trying to artificially buoy prices as they like to do. Note that just one year ago in the midst of increased drilling, demand was still high and prices were too.

Also alot of the GOP and Democrat drilling comments back then were directed at opening up sites in Alaska and off-shore that would not have yielded oil for years, and thus would not have been part of the current trend.

 

[El_Machinae]

That last paragraph of Illram's is a reasonable point. I mean, obviously drilling brought down oil prices so bringing it up is fair. It's just all the drilling was done in ways that was totally below the radar of the political debate.