Oil Finds a Range

One critical issue is absent in this election year. Well, actually all critical issues are absent, but that’s another point. This time around absolutely no one is talking about one thing that has dominated US politics since the early 1970s – the price of oil. Gasoline is cheap and everyone is happy.

Everyone, that is, except the oil and gas industry. The crash in oil prices in 2014 has confounded the business of drilling, baby, drilling and left oil prices if anything too low – a concern if your job is to make the bubblin’ crude come out of the ground.

It’s been a mystery since the crash just where oil prices will finally land. Today, however, most experts finally agree – we are probably right now in the range that oil will stay at for at least the next year, if not beyond. That’s great for the US, but terrible for other oil producing nations.

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A Slippery Commodity

Oil is the most traded and shipped commodity in the world, amounting to a total of 90M bbl per day total production – 33B bbl per year or nearly $1.5T even at today’s low price. There is nothing more critical to a developed or developing economy than to keep things moving, which is to say this vast ocean of oil is critical to the economy as we know it today.

You’d think with such a steady supply and critical demand that the price would naturally stabilize according to the natural laws of supply and demand. Apparently, oil greased its way through that semester of economics.

Where will the price of oil go from the decades-long low of $45 per bbl that it is today? The short answer is that no one knows. The long answer is that anyone who hasn’t been cashed out of the game is betting that it has to go higher, but no one know when or how high.

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No Longer Driven by Oil

A new international war has started in the Middle East as Syria continues to burn. Russia is slowly being strangled by international sanctions that are now cutting off their ability to produce and sell oil. With all of this happening in the world, something remarkable is happening to the price of oil – it’s dropping.

How could this happen? The short answer is that the US continues to move towards energy independence, producing its own oil while consumption is stagnant. It’s a good thing, all in all, but it means that the environmental degradation that was once found only in distant lands, and conveniently ignored by nearly everyone in the US, is now upon us. What can we do?

There’s a decent chance that the free market will actually sort it all out – once it’s been properly regulated to account for the environmental damage, that is.

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Breaking the Oil Cycles

News shown out over the highway in big glowing numbers – 3.289, a number lower than anyone had seen in a while.  That was the price per gallon of gasoline the last time the little purple car was filled up and piloted back down the highway.  A few months earlier it was 3.929 at the same station, about 20% higher or $7.68 over a tankful.  How can that possibly be?

Many things go into the price of gasoline, but the most important is the cost for crude oil.  Something around 60% of the cost at the pump is the raw material that fuels our lives, the rest being more or less fixed costs in refining, transportation, taxes, and profit.  It’s the price of oil that is notoriously volatile, driving the changes at the pump.  And something is about to be done about it, too.

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