Drama in the Oil Markets, But This Isn’t 2007 Anymore

How the US shale boom changed the equation. If the attack on Saudi oil facilities had occurred in 2007, it would have caused chaos in the US economy.

The attacks on Saudi Arabia’s largest oil-processing plant at Abqaiq and its second-largest oil field in Khurais on Saturday knocked out about 5.7 million barrels a day of output – about half of Saudi production and about 5% of global production. Saudi military officials told reporters on Monday that the preliminary investigation of “debris and wreckage” shows “it belongs to the Iranian regime,” and that the long-range drones were not launched from Yemen, as Iran-backed Houthi rebels there had claimed.

The White House has pointed the finger directly at Iran. Trump tweeted on Sunday that the US government was “locked and loaded depending on verification,” but was “waiting to hear from the Kingdom as to who they believe was the cause of this attack, and under what terms we would proceed!”

On Monday, the Wall Street Journal reported that “people familiar with the discussions” said that US officials said that intelligence suggests that the attacks were staged in Iran. Retaliatory strikes are being weighed.

Some of the production could be restored in days. But Bloomberg reported, based on a source, that “Aramco officials are growing less optimistic that there will be a rapid recovery in production.” Saudi Arabia can use part of its stock of about 645 million barrels of crude and petroleum products to make up for lost production in the near term. But “Aramco could consider declaring itself unable to fulfill contracts on some international shipments – known as force majeure – if the resumption of full capacity at Abqaiq takes weeks.”

In 2007, this scenario would have caused unspeakable upheaval and chaos in the oil markets globally, but particularly in the US, which at that time had relied heavily on Saudi oil. Prices would have hit astronomical levels and causing all kinds of wreckage.

But this isn’t 2007 anymore.

The price reaction in the market was breath-taking of sorts, with the price of WTI spiking 13% to about $62 a barrel at the moment.

But wait: The US is stuck in an oil bust that started in mid-2014, after years when WTI traded between $90 to over $110 a barrel. By early 2016, the price of WTI had collapsed to $26 a barrel. The Fed pulled back from the four expected rate hikes in 2016 because the oil-and-gas sector was threatening to collapse, and credit was already freezing up for the sector, and bankruptcy filings occurred in rapid-fire sequence. The Fed was worried that the collapse of the industry and the freezing of credit could spread to other industries.

That was the opposite scenario of today. Today, US shale oil drillers are seeing a modicum of relief from the 13% price spike. But it’s not much of a relief. At $62 a barrel, WTI is still $6 (9%) below where it had been last year at this time. And it’s about $44 (43%) below where it had been in July 2014:

The most important factor that changed since 2007 is that US production of petroleum and petroleum products has skyrocketed by 142% from about 7 million barrels per day (bpd) in 2007 to about 17 million bpd:

In the process, the US has become the largest crude oil producer in the world, and imports from Saudi Arabia have shriveled to about 450,000 barrels per day. China, Japan, and South Korea are now large customers of Saudi Arabia.

The US has been involved in a lively trade – importing and exporting – with the rest of the world in crude oil and petroleum products such as gasoline. Among the reasons are pricing, demand by refineries in the US and around the world for various grades of crude, and geographical reasons.

California, for example. There is no pipeline connecting the state to the oil producing areas east of the Rockies. Since California’s own production is not nearly enough to meet demand, it has been importing crude oil from Alaska. As Alaskan and Californian production has been shrinking, California increased imports from other countries.  At the same time, California’s refineries are refining imported crude oil into gasoline and are exporting it to other countries, mostly in Latin America.

Netted out across the US, imports and exports of crude oil and petroleum products are now nearly in balance. Net imports (imports minus exports) of crude oil and petroleum products in June were down to merely 506,000 bpd. The US is on track to become a net exporter in 2020:

This soaring production in the US is at least in part responsible for the collapse of the price of crude oil since 2014. The word is overproduction.

Shale-oil drillers were heavily incentivized to maximize production, and not worry about negative cashflows and losses – and the industry has been burning large amounts of cash from day one that Wall Street was happy to provide. But recently Wall Street has gotten a little skittish, and credit conditions for shale-oil drillers have tightened. So a rise in the price of oil from the collapsed levels is a godsend for the industry.

Natural gas production in the US has skyrocketed as well, making the US the largest natural gas producer in the world years ago. Last year, the US became a net exporter of natural gas (exporting more than importing). This trend has strengthened in 2019.

The oil-and-gas industry and the industries that support it – manufacturing (specialized vehicles, heavy equipment, etc.), finance, insurance, suppliers of raw materials, the tech sector, and others – combine into a very large field of economic activity around oil and gas production.

A boom in this industry has a powerful impact on the real economy in the US, including in areas that are otherwise not favored by economic development. Workers are highly paid. And they spend much of this money, and it spreads to other sectors.

A higher price of crude oil on a sustained basis translates into higher prices at the pump. But gasoline prices have been crushed by the oil bust, and despite years of inflation overall, the average price of gasoline, all grades combined, as of September 9 at $2.55, is where it had first been in August 2005:

Even if gasoline prices rise, and some consumers are feeling the pain in their budgets, there remains a simple fact: Gasoline sales are also part of the economy and enter into GDP calculations. Any additional dollar spent on gasoline is an increase in GDP. If some consumers curtail spending money on clothing in order to spend more on gasoline, the net effect on the economy is still positive:

Unlike clothing and many other things, gasoline is not imported from China or Bangladesh; it’s a US product, requiring a sophisticated, high-value production chain with highly paid US workers. On the other hand, the value of imports are subtracted from GDP.

In 2007, part of the money that consumers spent on gasoline went to pay for imported crude oil to enrich foreign oil producers at the expense of the US economy. But this is no longer the case. And an enduring surge in the price of oil to $70-plus for WTI will unleash an even more intense production boom that will turn the US more quickly and more sharply into a net exporter of crude oil and petroleum products, which would be a net positive for the US economy, and which would eventually cause the price of oil to re-collapse.

What would the Fed do if economic factors were all it looked at? Read…  “Core” Inflation Rises Most Since Sep 2008, Powered by Services and Now Even the Peculiar Case of Durable Goods

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  168 comments for “Drama in the Oil Markets, But This Isn’t 2007 Anymore

  1. 2banana
    Sep 16, 2019 at 4:00 pm

    “Sen. Elizabeth Warren, Massachusetts Democrat, said Friday she would immediately ban fracking if elected president, drawing pushback from critics who said the move would cripple the U.S. oil-and-gas industry and force the nation to import fossil fuels.”

    https://m.washingtontimes.com/news/2019/sep/7/elizabeth-warrens-call-ban-fracking-everywhere-fue/

    • Zantetsu
      Sep 16, 2019 at 4:35 pm

      Fracking lowers the global cost of oil, as Wolf noted above, and cheap oil will destroy our environment. It sucks that we can’t all just roll around in cheap energy at the cost of the planet we live on, but burning your bed for warmth as you lie in it seems like a bad idea. The shortsighted will never see it that way though. As they burn they’ll continue to look for blame elsewhere.

      • Sep 16, 2019 at 4:47 pm

        Too true. I had some hope the attacks would set off the great economic crash, and give us some breathing room in this horrible game of ecological collapse, but not this time, I guess.

        • 2banana
          Sep 16, 2019 at 5:24 pm

          You were hoping for a great economic collapse to save the environment???

          Liberals/progressives thinking at its finest.

        • alex in San Jose AKA Digital Detroit
          Sep 16, 2019 at 6:46 pm

          2banana – speaking as someone from what in the US is considered the far left, what in Europe would be considered leftish-center, that’s exactly the thinking.

          If it were only that simple!

          Look up the “McPherson Paradox” or the “Global Dimming Effect” – the idea, best explained by Guy McPherson who’s on YouTube, is that if we suddenly stopped our petro-burning ways, all that nice dust and particulates etc would fall out of the air in a matter of weeks and the planet would *really* cook.

          Good thing it’s being pretty strongly demonstrated that humans are going to keep consuming all the oil and everything else they can, until they can’t.

        • Pinto
          Sep 17, 2019 at 2:04 am

          The best for the environment would be ending, economy artifacts like QE and NIRP.

          Darwin theory would apply.
          “Survival of the fittest”

          No more welfare and big government jobs no one really knows what’s their value!

      • Kessler
        Sep 17, 2019 at 1:06 am

        Actually, we can and should roll in cheap energy. Gas is a very clean energy source – US has greatly reduced it’s emissions by switching to it. Energy consumption will not go down, if gas goes away. We’ll just switch to dirtier, enviromentally more damaging energy sources.

        • BridgetownBeast
          Sep 17, 2019 at 1:18 pm

          Kessler,
          Natural Gas is a fossil fuel source which produces CO2 when burned. Moreover, mining and transporting natural gas releases some of it into the atmosphere, where it has a much higher global warming potential than CO2. Perhaps it is cleaner than oil and coal but it also has a far lower heat content, which means that you must burn more of it to produce an equivalent amount of power. There is no such thing as clean fossil fuel, it was a meme created by the fossil fuel industry to obfuscate the issue.

        • Wisdom Seeker
          Sep 17, 2019 at 1:46 pm

          @Bridgetown: Suggest going back to school on that “heat content” thing.

          To produce a given amount of energy, one burns far LESS natural gas (by mass), and it produces far fewer pollutants (e.g. fly ash from coal combustion) as well.

          Pure methane delivers 50+ MJ/kg of heat.
          Natural gas as delivered is 42-55 MJ/kg.
          Gasoline and diesel are 42-46 MJ/kg.
          Coal is only 10-25 MJ/kg.

          I agree there’s no such thing as a clean fossil fuel, but NatGas is the least dirty. And pragmatically, since NatGas is already a byproduct of petroleum extraction, which isn’t going away anytime soon, it’s far better environmentally to put that NatGas to productive use than simply venting it or flaring it at the wellheads.

          Finally, I would add that there’s nothing wrong with chemical fuels for combustion energy provided the cycle is closed. The environmental imbalance is solely due to the mining of all that sequestered fossil carbon without subsequent re-sequestration.

      • RagnarD
        Sep 17, 2019 at 11:43 am

        What is the REAL cheap energy?
        It’s not fracking, it’s zero interest rates and the publics belief in paper money. How much carbon is emitted due to trillions of dollars of deficit spending ?

    • Sep 16, 2019 at 4:59 pm

      2banana,

      I wonder if she did the math on this. If this happens, we’re looking at $150+ a barrel, some very rich Saudis and Russians, and lots of impoverished Americans trying to buy gas. Plus a totally destroyed economy in the US oil patch with lots of unemployed formerly-highly-paid workers. And a crushed manufacturing sector that supplies the industry. And some other factors…

      I think it’s less painful to encourage more efficient ICE vehicles, EVs, less driving and flying (that includes you, Sen. Warren), reduction in immigration, and other strategies to lower demand for petroleum products in the US. And let fracking decline on its own.

      • 2banana
        Sep 16, 2019 at 5:27 pm

        “Running with Snowflakes” did the math that her energy insanity would get her a few extra votes and a few more dollars in campaign donations.

        It doesn’t matter that her proposed policies would have half of us freezing hungry in the dark.

        • Brant Lee
          Sep 16, 2019 at 7:40 pm

          Yes, we wouldn’t want any vision out of government to perhaps lead the best way possible into the energy future, now would we? But as you say, tell the herd what they want to hear, once in office, blame problems on someone else.

        • Zantetsu
          Sep 16, 2019 at 9:22 pm

          Well for what it’s worth I think the idea of the government outright banning any industry is foolish and un-democratic. But certainly, discouraging fracking via taxing and regulation would be fine with me. Actually, implementing policies so that all externalities have to be built into the cost of doing business would be even better, but that’s a pipe dream.

          I am kind of disappointed that some candidates whom I think are otherwise strong are just getting more and more extreme with their platforms. It’s kind of turning me off to candidates that I was previously pretty excited about.

        • rivereddy
          Sep 16, 2019 at 11:59 pm

          Yes, it will be so much better for us to squeeze all the frakking rocks in the U.S for the last drop of oil and…then what, beg the countries that had more sense for some of their petroleum? No need to worry about our oil companies and their best employees though, they’ll just move on to the next frakking country.

        • flashlight joe
          Sep 17, 2019 at 10:04 am

          This whole argument of best energy policy, both sides, is assuming price has no effect on people’s behavior.

          My “economic wizard” solution is to ditch the federal income tax on labor (delete line #1 of the 1040 form), and tax polution, plastic, petroleum, pesticides, and poison – the 5 P’s.

          Then market forces, ie. people deciding how to spend, will encourage people to drive 60 mph instead of 70, they will work closer to home, move closer to their jobs, carpool or use (improved, I hope) public transportation, live in a smaller house, hire someone to weed instead of using Round-up, buy a canteen instead of non-reusable plastic water bottles, rake the leaves instead of using a blower, plan their car trips, etc.

          We should tax what we want less of, because that’s what we’re going to get. Think of the damaging effects this federal income tax has on the hiring of labor.

          Remember the income tax was a war tax to fund WW1. In was expanded to wages with federal withholding to fund WW2, designed, ironically, by Milton Friedman.

          Stop taxing wages and delete line #1 of the federal income tax form to improve the economy, the environment, and our lives.

          Thanks for listening.

        • NBay
          Sep 17, 2019 at 1:58 pm

          I loved the 55 mph speed limit, when it was imposed, understand the fuel savings physics of it, and the side benefit of greatly reduced traffic fatalities. It is the simplest way to save on many resources, automakers would be forced to design for it, reducing many costs.
          Since commuters seldom avoid heavy traffic, nobody spends much more time on the road.
          And if you get bored driving at 55, tough shit.
          Go to a track or drag strip and show your “driving skills” off to others of the same ilk, not old ladies going shopping.

        • Sep 17, 2019 at 3:33 pm

          NBay,

          I suggest you try driving across Texas at 55 mph. It’ll take all year :-]

          Not everyone drives in the Bay Area, where 35 mph during rush hour feels like flying.

        • NBay
          Sep 17, 2019 at 2:06 pm

          OK, banana, so what is the opposite of a snowflake? Since it is an insult (as taught to you, anyway) you must know the desired alternate personality type.
          I expect a BRIEF and exact definition, or if you have any creativity, just one word.

          Thanks. Don’t hurt yourself.

        • alex in San Jose AKA Digital Detroit
          Sep 18, 2019 at 12:50 am

          Flashlight Joe – One thing people use RoundUp for is getting those weeds that grow in cracks, between rocks, etc. It turns out that you can use boiling water on those. Just boil water, or use the hot water left over from boiling eggs or something, pour on weeds, see results the next day or so. It’s a really neat system – my mom used to take the gasoline out of the mower and pour that on them, shows the old ways are not always best!

      • Boot6761
        Sep 16, 2019 at 6:42 pm

        There are many who feel the content of your reply supports why the US could be viewed in a conspiracy theory as being involved…all of the oil producing countries need $80/barrel to break even…all have been operating at major losses…including frackers…hence we need conflict….

      • MCH
        Sep 16, 2019 at 6:56 pm

        Wolf,

        Warren doesn’t care if some Saudis or Russians get rich. I think she fundamentally only cares if some Americans are getting rich off of oil. Which is crazy on its face. I think the problem is that rational reduction in the use of oil is going to be difficult and unpalatable. All of this is only about good sound bites, not consequences of those sound bites. Just consider the fact that increases in gas taxes in CA is disproportionately targeted at the lower income folks. Does the Cooks and the Zuckerbergs of the world care if gas is at $15 a gallon? They probably would consider it a good thing because it would reduce traffic. The Warrens and the AOCs of the world would probably consider this a great thing because it helps the environment.

        With energy policies, now it’s all about what feels good, not what’ rational. Which means everything is about renewables such as solar and wind, but doesn’t take into account things like nuclear which on average is much cleaner, and less consumptive of space. The problem appears to be that many people consider solar and wind to be the cure all when it is nowhere near that, and I find those who advocate the loudest typically has the least clue in terms of the science and engineering of those energy sources.

        In terms of automotives, I believe you pointed out previously that shifting over to non-ICE vehicles are a challenge to the automotive industry because their value add is then diminished radically to that of an integrator. And while improvement in CAFE standards would be wholly welcome, there is little incentive for the auto industry to do it unless it is mandated by law. (That and the fact that profits mainly come from gas guzzlers, not the Ford Focuses of the world)

        • Zantetsu
          Sep 16, 2019 at 9:39 pm

          Does every single policy have to be held hostage by “what it will do to poor people”??

          Seems that way, when every single policy idea immediately is attacked if it somehow is not a benefit to the lower income brackets. Like exactly how many breaks do these people get?

          When I see so many people driving crappy huge old SUVs like 2006 Tahoes and 2004 Expeditions (or my personal “favorite”, big black lifted pickup trucks), I just have no sympathy.

          If you drive a car that gets 30 mpg on average, and you drive 1000 miles a month, then you’re buying 33 gallons of gas per month. At the highest mainland prices in the nation (California) that’s currently $121. If gas became 50% more expensive, you’d be spending an extra $60 per month on gas. I am sure that there are people for whom $60/month takes them from able to get by to not able to get by; but that’s got to be a small number of people. I would think that almost everyone can tighten their belt a little bit and make it through.

          Now if you drive a gas guzzler that gets 18 miles to the gallon, then yeah, you’re already spending $200/month for gas, and a 50% increase is $100. Well, the additional $40/mo (beyond the increase that someone with a more efficient car will be paying) is the price of your bad decision. Sorry, but if you make bad decisions, sometimes you have to pay for them. Even if you are poor and the everyone is happy on your behalf to believe that the world is so unfair to you.

        • Zantetsu
          Sep 16, 2019 at 9:41 pm

          Replying to myself, of course the cost of energy impacts the cost of everything, so of course everything gets a bit more expensive, not just gas, when the price of gas goes up. This can be mitigated to a degree by consuming less — which is exactly what this planet needs anyway …

        • MCH
          Sep 16, 2019 at 11:24 pm

          @ Zantetsu

          Consume less you say… well, isn’t that the same version of Marie Antoinette’s let them eat cake?

          It is hypocritical on the one hand to raise taxes on gas as CA does and it disproportionately impacts the lower income levels.

          Then turn around and give tax credits for EVs for the sake of the environment, which are at best a giveaway to the middle class, but more realistically, if you look at the various income strata, who does those credits help the most?

          So, to answer your question, no, not every policy does. But it seems that the policy which most impacts poor people are the one that has monetary costs associated with it.

        • fajensen
          Sep 17, 2019 at 4:23 am

          Humanity, as it is currently configured, cannot handle nuclear energy safely.

          For nuclear energy to be safe and reliable, the engineering has to be perfect, the people handling the operations and materials flawless in their diligence, the regulators incorruptible and the enforcers being enforcing!

          And, we, and all our systems, have to remain in that state of bummed-up peak perfection for the 40 – 60 years of operation of the facility, followed by many, many years of similar peak human performance within active waste management.

          Sadly, reality has shown that this is not possible and indeed the nuclear gravy train goes right of the tracks already with the engineering these days. The more or less only remaining caster of very large special parts that can be used in the nuclear containment systems of reactors, Forge Creusot, delivered faulty components to FRAMATOME and probably also to the Finnish Olkiluoto- project.

          This “simple mistake” is causing Years of additional delays and billions in additional cost-overruns that one simply doesn’t get with any other energy source than nuclear.

          When we finally get a facility to work, it is only the beginning of the work and expenses: We have left spent fuel, requiring active cooling for decades, sitting all over in pools because we couldn’t figure out what we ought to be doing with the stuff.

          We are talking about entire working careers spend on nursing nuclear waste and those workers having to give a toss every day of that time, which of course is unrealistic, those “temporary” storage facilities will become degraded and then they will leak.

          Adding even more stuff to that pile of “shit we cannot deal with now, because ‘costs’ or ‘politics'” is just stupid.

          Nuclear is the most Irrational choice, judged from the way that humans actually work, the actual reliability and longevity of the kind of technical / regulatory systems we do know how to build, and in terms of financial investment.

          Even if people cannot mentally deal with consequences from wind or solar, those consequences are all local and limited in time, survivable I.O.W. With nuclear … If the Roman Empire had used nuclear power, we would still be managing their waste, assuming we survived the fall of Rome. Those Roman reactors and waste storage facilities would have cooked off or leaked due to lack of maintenance during the Dark Ages!

      • Jack
        Sep 16, 2019 at 8:00 pm

        2banana & Wolf,

        There will Never be a moratorium on Fracking in the US!!

        ( at least into the next 20years, bar a ground breaking technology like minuscule Nuclear device that powers trains , buses, cars!!, or safe Hydrogen engines.. etc). Or a great advance in Nuclear Fusion technology.

        So Warren just killed her prospects of vying for presidency!

        The only problem that could spell a sudden death to Fracking is when ( big money) gets behind a large nation wide class action against the frackers with extensive evidence to support the huge number of cases of water resources pollution and great loss of human life and health.

        But the ( big money is now behind the oil industry)! Which needs to be milked to the last drop , then it’s someone else’s problem.

        • SHOfan
          Sep 17, 2019 at 1:55 pm

          She may still win the presidency, but not be able to do anything about fracking.
          All these candidates talk about what they are going to do, day-one, when they are elected.
          In reality, they cannot make all those promises happen.

        • Alexa Hebbard
          Sep 17, 2019 at 8:36 pm

          Many of these problems will be addressed as we move back to small(er) reactors using the Oak Ridge, TN technologies of the 60’s, like the Molten Salt reactor. It operates at nearly atmospheric pressure, thus no heavy containment vessel. And finally, the SAFIRE Project (cf..) promises very inexpensive power from transmutation in LENR. !Don’t laugh..It’s real.

      • DR DOOM
        Sep 16, 2019 at 11:42 pm

        We must find a purpose other than converting resources
        For the the sake of growth. If we fail to do this we will be no more than bacteria stripping out nutrients in a petri-dish until we expire in our waste.

    • Anthony Aluknavich
      Sep 16, 2019 at 5:53 pm

      After working 35 years in the oil patch, I can truthfully say that oil companies have been “fraccing” hard rock formation to get the trapped hydrocarbons out since 1920 or so.

      It’s nothing new folks….only now we can fracture horizontally drilled wells and get more production out of the hydrocarbon rich basin.

      • Jay
        Sep 16, 2019 at 8:34 pm

        Yes there is something new about it. Now there is big money in it. Add in the big threat to Saudis and Russia and you have something to fight about.

    • daniel weise
      Sep 16, 2019 at 11:09 pm

      Lol,you are fighting the good fight banana but you are up against a generation that was tought :Big Oil = Bad as they type their misinformed theories from their Laptops (plastic) and then get into their Priuses (plastic) while waiting for a spot at their charging terminal witch is powered by oil,gas,coal. if you want to see the future of the world envisioned by the climate fanatics just look at Germany’s “Energie wende” witch is turning out to be complete disaster with energy costs spiraling out of control. nuclear plants shut down(and now importing nuclear power from France), Coal mines closed,massive amounts of (Tax)money thrown at Wind farms that are not performing. but yes,of course we saved the Earth! The simple fact is: the US is now Energy independent witch is GOOD. The World will go on with or without Fracking.

  2. Seneca's cliff
    Sep 16, 2019 at 4:28 pm

    This is still very bad for the economy for 2 reasons. The first is this net exporter stuff is a bit of a fudge. The underling numbers are that the us uses about 20.4 million barrels per day of crude oil and actually produces from domestic fields of all kinds about 12.4 million barrels per day. The rest is made up of natural gas liquids, refinery gains, and petroleum that is imported, refined and then exported. We are still dependent on imported oil, especially for diesel and jet fuel, because tight oil is too light too produce much of those products. If world oil prices are driven up drastically we won’t be protected from high prices just because the oil is domestically produced, unless the U.S. oil industry is nationalized.

    • Sep 16, 2019 at 5:26 pm

      There is no fudge, but you’re getting the numbers mixed up: “underling numbers are that the us uses about 20.4 million barrels per day of crude oil…”” NO, NO, NO… NOT “CRUDE OIL.” That 20.4 million bpd of consumption is the total of crude oil PLUS petroleum products combined. So you cannot compare that to just “crude oil” production.

    • Rat Fink
      Sep 16, 2019 at 5:48 pm

      From the EIA site:

      In 2018, the United States imported about 9.93 million barrels per day (MMb/d) of petroleum from about 86 countries.

      • Sep 16, 2019 at 8:00 pm

        Rat Fink,

        The number you cited are imports of “crude oil AND petroleum products” combined, according to the EIA.
        https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MTTIMUS2&f=M

        And the US EXPORTED 7.6 MM bpd.
        https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MTTEXUS2&f=M

        That’s a difference of 2.3 MM bpd. = net imports in 2018.

        And in 2019, the difference (net imports) has shriveled further due to surging exports and declining imports.

        In June, the last month available, the US imported 9.2 MM bpd and exported 8.7 MM bpd, for a difference of 0.5 MM bpd

        Got it?

        This is what I said in the article. If you had read the article, I would not have had to waste my time now saying the same thing again.

        • Rat F.ink
          Sep 16, 2019 at 8:33 pm

          Thanks for the links. Very helpful.

          Now how do we rationalize the fact that most of the oil produced in the United States is done so at a loss.

          How can that be a positive for the economy?

        • Sep 16, 2019 at 8:37 pm

          “How can that be a positive for the economy?”

          Yes, it’s a positive for the economy (while it lasts), but it’s a negative for investors whose money gets burned (and eventually they refuse to play along and then it stops).

          I have discussed this effect here in the context of a different industry.
          https://wolfstreet.com/2019/07/04/when-the-music-of-the-wealth-effect-stops/

        • Sep 17, 2019 at 12:11 am

          I just wish my home state of California could be a net exporter of oil. We have the oil, but our loving liberals prefer an economy that encourages 3rd world slums to develop in major cities.

          We also have way too much unnecessary driving because we encourage anything that raises the cost of housing while underinvesting in transportation infrastructure.

        • Wisdom Seeker
          Sep 17, 2019 at 2:04 pm

          @John Taylor –

          Yes, California is wacko. A state that really wants to be green AND have uncontested highways would take more steps to help people find appropriate housing near their workplaces, so that transportation needs are minimal.

          There’d be no need to invest in transportation infrastructure for decades if the average commute dropped from, say, 30 miles to 5 miles. Vehicle mileage would drop and total fuel consumption would drop as well. But a lot of political eggs would have to get scrambled.

          Many years ago I used to take heat for owning an SUV from someone with a more-efficient car, until I pointed out that her 50-mile commute burned 10 times more fuel, even at 50 mpg, than my 2-mile commute did at 20 mpg.

  3. Sep 16, 2019 at 4:29 pm

    Natural gas has been under priced relative to gasoline on a BTU basis, where it lacks economy of scale. Since 2007 it has lost nearly 50% relative to crude oil. NG is preferred for industry and power plants. A rise in NG prices will hurt more than a rise in crude, and gasoline which is already priced at the top end of the consumer comfort level. We have alternative sources, including renewable, but start shifting demand and you bust up a low cost subsidy for consumers, making the recession a lot worse. NG prices will rise on their own, with no supply constraints when it builds an economy of scale.

    • Paulo
      Sep 16, 2019 at 4:57 pm

      NG is a byproduct of Shale production, so much so, it is consistently flared. If Shale production expands NG prices will remain low and profits non-existent.

      • MCH
        Sep 16, 2019 at 6:58 pm

        And if you think about how stupid and wasteful that is to just flare off NG, you’d scream. It is literally like burning money.

        • Rat Fink
          Sep 16, 2019 at 7:05 pm

          The other options are:

          1. lose money delivering it to markets that are far away
          2. don’t flare it and just release it into the atmosphere

          Doncha think that if there was a viable alternative to the above, they’d not do it?

        • Brant Lee
          Sep 16, 2019 at 7:52 pm

          They can’t generate electricity onsite with this stuff? An outbound power line is not too expensive.

        • MCH
          Sep 16, 2019 at 11:30 pm

          @Rat Fink

          I understand your point of view. And it is very reasonable from an economic perspective. Just like it is far more reasonable to hire woman at lower wages. But the waste seems just very short sighted.

        • Prairies
          Sep 17, 2019 at 10:55 am

          Brant: You can’t attach a power line to a NG pipe and get power. You are missing a very very large(expensive) step, converting the gas to energy isn’t that simple. If government would push for more storage facilities for NG and convert more Coal facilities into NG facilities the amount of wasted energy could be reduced, but government officials can’t win votes with such logical and sane policies.

        • Sep 17, 2019 at 10:58 am

          So if NG did achieve economy of scale, there would enough profit margin to justify marketing costs? If we build NG cars, a transport system will follow? Isn’t that sort of how the ICE gasoline engine evolved? First the car, then the highways and refineries and stations come later? Does Musk know about this?

  4. Paulo
    Sep 16, 2019 at 4:54 pm

    Instead of Drama the production numbers have bred complacency with both the general public and US politicians. It reminds me of the current state of farming. “How can farmers have a problem putting food on the table ? Just look at all those fields full of crops”? Of course the farmers currently have trouble selling whatever they grow. In fact, they bring in less money than what it costs to produce. Kind of like Shale, or Wisconsin dairy.

    From Oilprice: “Just because shale production is skyrocketing does not mean that refiners want the oil. Franco Magnani, the head of trading at Eni, told the FT that the company won’t rush out and by shale oil because its refineries were not made for that type of oil. “It could be a top-up in certain situations but not really a base diet [for Eni’s refineries],” Magnani told the FT. “[Shale’s] very light so either you have a refinery that’s geared towards that but maybe then it’s too light even for that. Or you use it only in very specific situations.”

    Not everyone agrees, noting that in a 100-mb/d oil market, adding 1 or 2 mb/d of light oil is manageable. The problem with that notion is that only a fraction of the global refining industry can handle digest additional barrels of light oil. After excluding the U.S. refining system, which is reaching its limits, the market for light oil is closer to 15 mb/d, the FT reports.

    The result could be that shale producers might have to accept discounts for their product in the next few years if refiners balk at purchasing every additional barrel of light oil.

    According to a recent study from Wood Mackenzie, roughly three-quarters of the additional oil expected to come from U.S. shale will have to go overseas because U.S. refiners will be maxed out on light oil.

    Others agree. “There will still be a sizable surplus of lightweight crude,” Rob Smith, director of IHS Markit’s oil markets and downstream group, told Reuters. He predicts U.S. shale will add 4 mb/d of new supply by 2023, a volume that cannot be taken up by existing refineries along the Gulf Coast. WoodMac estimates that refiners will only be able to take up about 1 mb/d of extra 4 mb/d through 2023. The rest will have to be exported.”

    “Ultimately, a surplus of light oil could be a problem for shale drillers. Sharper discounts could challenge the economics of adding new supply, perhaps throwing up obstacles to growth. That could challenge the industry’s ability to meet the aggressive expectations that so many forecasters have laid out.”
    By Nick Cunningham of Oilprice.com
    https://oilprice.com/Energy/Energy-General/US-Shales-Dirty-Secret.html

    Thanks to this drone attack, there is now 5 million barrels per day less feedstock currently required to blend with LTO (Shale).

    I do agree that it is better for the public to carry on with guarded confidence and not contribute to any hysterical purchasing reactions like the embargo of ’73 saw. However, I would temper that confidence and keep it in direct relationship to the confidence one has in current leadership. If you feel there is a steady hand on the foreign relations tiller, then Bob’s your uncle. No worries. Me? I filled up today. :-) If someone attacks Iran all bets are off. Apparently, DJT is waiting for KSA to tell him what he should do?
    https://www.politico.com/story/2019/09/16/saudi-trump-oil-iran-1498147

    “Avast their matey, steady as she goes ’cause we’re locked and loaded.” Like I said, it’s about complacency and leadership.

    regards

    • Sep 16, 2019 at 5:19 pm

      Paulo,

      “Just because shale production is skyrocketing does not mean that refiners want the oil.”

      It’s time to let go of that red herring, Paulo.

      People have been saying the same stuff for YEARS, including you, like a broken record. But none of the petroleum products get thrown away; there is a market for everything, somewhere in the world. US refiners have adjusted too. Sure, different grades fetch different prices. No biggie. Just look at Western Canadian Select which trades at a $12 discount to WTI; but that doesn’t make the Canadian oil industry invalid.

      However, natural gas does get flared because of lacking take-away capacity in some shale-oil fields. That’s the real problem. It’s a huge waste of a valuable resource. It’s costly to solve — and they’re working on it: building natural gas pipelines from the oil-producing regions to population centers. Given how fast shale gas production ramps up in new producing areas, pipelines have had a heck of a time trying to catch up. This has happened around the US.

      • Rat Fink
        Sep 16, 2019 at 5:36 pm

        Many people have been saying for years that central bank policies since the early 2000’s are going to have a catastrophic outcome.

        They’ve been wrong for nearly two decades now.

        But are they wrong?

        • 2banana
          Sep 16, 2019 at 6:35 pm

          Depends where you look.

          Argentina, Greece, Cyprus, Zimbabwe, Venezuela, Mexico, etc. all have been devastated by their central banks (who were following orders from the top politicians, but that is an another type of argument)

          “Many people have been saying for years that central bank policies since the early 2000’s are going to have a catastrophic outcome.”

      • Paulo
        Sep 18, 2019 at 8:55 am

        So Wolf, will you now invest in Shale? :-) I wouldn’t, even though the Industry is always about investor lemmings and never about making a production profit. I suppose with good timing investors could get in and out and make money.

        Your article and replies indicate a more positive outlook for Shale, yet the numbers seem to always add up to more bankruptcies.

        https://www.wsj.com/articles/oil-and-gas-bankruptcies-grow-as-investors-lose-appetite-for-shale-11567157401

        If WTI prices increase, the stampede continues and more marginal areas are drilled and fraced. This should keep the bankruptcy levels the same or higher.

        The model doesn’t work except for promoting a meme of complacency. This old saw…fits, “Well, we’re still losing money so let’s just make it up in volume”.

        regards

        • Sep 18, 2019 at 9:21 am

          Paulo,

          There are three separate aspects of shale – and it is very important to keep them separate:

          1. Shale at these prices is terrible for investors. Investors are subsidizing this industry. As you pointed out, I’ve long been posting articles on the bankruptcies in the industry. This will continue at these prices. For investors, shale is a money pit, and as an investor, I will not touch it with a 10-foot pole. There will be a lot more bloodletting.

          2. Shale is incredibly fast at ramping up production, it’s producing a huge amount of product, and that production is soaring (which is why prices are so low). It’s growing faster than pipelines can get built. It’s growing so fast that it causes imbalances, including at refineries, and takeaway problems because no one else can catch up. But this catching up means billions of dollars in investment in pipelines, refineries, etc. So this has a lot of very big positive effects on the US economy: highly paid jobs, plus growth in manufacturing of heavy equipment, pipeline construction, finance, other services, retail, etc. It has created US independence from Middle East oil. It has created very cheap fuel (gasoline, diesel, natural gas) in the US. It has done many things that are great for the US economy, as I pointed out in the comment section.

          These benefits were funded and subsidized by hundreds of billions of dollars from investors. That cash has been burned up. But it’s not my money. See #1.

          3. Shale is terrible for the environment, but so is mountain-top coal mining, Fukushima, and many other forms of dealing with our energy needs. Energy comes down to a choice of the lesser evils. And I’m all for society trying to reduce demand for hydrocarbon fuels, and personally, I’m doing my part.

          And in terms of not being financially sustainable – well, there are lot of things that are financially not sustainable but that keep being sustained for years, from Tesla and Netflix on down. So someday, prices will rise to make them sustainable (including oil prices for shale), or the companies will collapse.

          With oil it’s like this: if too many producers shut down, there will be a decline in supply, which will drive up prices, which will instantly cause a ramp-up in production in the shale sector – so it will swing up and down for decades maybe.

  5. Nicko2
    Sep 16, 2019 at 4:58 pm

    The US has 90 days of strategic reserves, and Saudi has a few months as well….if the repairs take many months (some are now saying 6 months), price will only go up.

    I’m happy with high energy prices, — Canadian dollar and stock market were up today. High energy prices is also good for renewables.

    • Sep 16, 2019 at 5:03 pm

      Nicko2,

      This — “The US has 90 days of strategic reserves” — is a total misnomer. it assumes that ALL production everywhere in the US goes to ZERO today and stays at zero. Not gonna happen. On the contrary. A higher price is going to cause the shale-ole drillers to ramp up production. And they can do that with lightening speed, as we have seen.

      The SPR is irrelevant.

      • Sep 17, 2019 at 11:13 am

        “The SPR is irrelevant.” That comment is worth another article or two. I do know that the emerging nations are building storage, which adds a few dollars to the price of bbl and increases demand in the interim. Post Katrina US Enterprise storage was added to Salt Dome to form a composite SPR. SPR became an accounting gimmick, in which Enterprise would count oil it owed SPR as it’s own and claim higher inventory (in order to bargain down the price to inbound tankers). Under 43 DOE was given authority to release SPR. New storage was added in 15′ when hedge funds got into the storage business (anticipating a rise in prices). What SPR means and how much is there in the aggregate is another question. I also assume if oil prices fall much more Mexico would shutter their Pemex operation and buy on the open market. The US energy policy for years was to save our own resources and import what we needed. Now that policy appears to be paying off.

      • Paulo
        Sep 18, 2019 at 8:58 am

        The SPR is physically irrelevent, but it sure adds to the complacency factor. Good time to unload the commuter SUV, forever.

    • 2banana
      Sep 16, 2019 at 5:23 pm

      Canada has lots of oil and gas.

      Their insane leadership and environment wackos make it very difficult to transfer that product to markets.

      • Bet
        Sep 16, 2019 at 5:51 pm

        Yes whacko indeed. With headlines like this today in the Seattle Times

        As Bering Sea ice melts, Alaskans, scientists and Seattle’s fishing fleet witness changes ‘on a massive scale’

        I lived in a fracking field , in a county
        Filled with hundreds of wells We will reap the whirlwind one day with fracking. To be so dismissive , so cavalier tells me you know jack all

        • IdahoPotato
          Sep 16, 2019 at 5:59 pm

          I suggest that 2banana post comments after moving next to a fracking well for 6 months.

        • 2banana
          Sep 16, 2019 at 6:45 pm

          Ah – the old “look at that without any context so we need to ban something to save the environment” argument.

          Did know that NYC was under over one mile of ice (not that long ago on a geological timeline)? Did you know Alaska used to have tropical rain forests with alligators at one time (not that long ago on a geological timeline)? Did you know that people once grew crops and raised livestock on Greenland a very short time ago?

          Gosh – if only stuff got banned back then…things could have been different.

          I suggest you both move to North Korea and freeze hungry in the dark – cause then you will be saving the environment.

          Oh wait – North Korea is one of the most polluted countries on the planet.

          Answer me these simple questions:

          What is the correct temperature of the earth?
          What is the correct level of CO2 in the atmosphere?
          What is the correct water level of the oceans?
          What is the correct number of hurricanes per year?

      • MarkinSF
        Sep 16, 2019 at 10:29 pm

        Yes loving planet Earth is utterly absurd and you definitely have to be a wacko if you’re offended by the Alberta tar sand pits. Or if you’re upset that our already dwindling fresh water supplies are being poisoned by horizontal fracking that violently injects harmful chemicals into the ground.
        Fortunately none of us here had the misfortune to be born in North Korea (whose landscape, natural resources as well as it’s population centers were virtually destroyed by the US during the “Korean War”). We choose to stand here in our own country of birth and stand up to this kind of destruction.
        Everyone understands that we are a planet depending on energy and are a heat generating species but the industries that determine exactly how this energy is generated knew long ago the outcome of continuing on as we are.
        While fossil fuels are intensive rich sources that produce massive amounts of energy when harnessed, the natural world has an infinite number of energy sources that could be developed to energize our way of life. The problem is that fossil fuels are required to create these energy sources, at least in the beginning. If this effort would have been undertaken 30-40 years ago when the oil companies knew that we were creating a huge greenhouse environment we could have been well on our way to be off fossil fuels.
        No need for the Iraq war or the toppling of Libya. No need to throw away $6 Trillion of taxpayer money in the middle east wars and be stuck in Afghanistan for 18 years!
        As for your silly questions below (I’m assuming most of us here have been educated somewhat on the geological timescale and the various eras and episodes) the examples you point out having little to do with man surviving this planet. If you live in Miami or Charleston SC the answer to the correct ocean level would be that which it was at least 5 years ago. India is already laying claim to the Kashmir, presumably to move populations from coastal regions that are already becoming uninhabitable (and risking nuclear war with Pakistan).
        For mankind to have a comfortable existence on Earth CO2 levels should be around 350 parts per million. The correct amount of hurricanes is irrelevant. It’s the intensity which is largely determined by how warm the ocean is (so far it is absorbing most of the heat trapped in the atmosphere from the excessive CO2). And what is the correct temperature? Well I think 108 is definitely not. Parisians will probably agree (although give them time, it’s only happened once in recorded history – this year).

    • Rat Fink
      Sep 16, 2019 at 5:39 pm

      How is a solar panel renewable energy? It is made using massive amounts of fossil fuels.

      And to top it off, when battery storage is added you actually have a massive energy sink (i.e. you use more energy to make the contraption than it produces)

      And if you don’t have storage you have intermittency problems as Germany is experiencing. So you need a back up power plant (usually coal, but nuclear will do).

      This is why Germans pay the highest rates for electricity of any OECD country. And it is starting to drive manufacturing businesses out of the country.

      And German emissions are not falling.

      • Dale
        Sep 16, 2019 at 6:15 pm

        I would like to see an analysis of energy and energy sources required to produce various ‘green’ products including those that generate and those that consume energy.

        You would think these would be readily available in order to squelch concerns that ‘green’ is largely a scam.

        I am interested in increased conservation, and in developing a portfolio of energy sources. But the paucity of detailed engineering analyses makes me suspicious.

        • MCH
          Sep 16, 2019 at 11:40 pm

          This isn’t about consumption and energy, but I assume this infographic has been seen from time to time.

          https://www.visualcapitalist.com/worlds-safest-source-energy/

          It’s kind of weird. I don’t know what the costs associated are, but would have to guess that nuclear is a crap load of upfront cost.

        • Jos Oskam
          Sep 17, 2019 at 1:53 am

          Dale,
          This site might be a good start: https://www.withouthotair.com/
          It’s a bit dated but still offers tons of useful information. After all, sound reasoning and correct mathematics can withstand the test of time :-)

        • Jos Oskam
          Sep 17, 2019 at 3:30 am

          From the free book downloadable from the site above:

          “…Twaddle emissions are high at the moment because people get emotional (for example about wind farms or nuclear power) and no-one talks about numbers. Or if they do mention numbers, they select them to sound big, to make an impression, and to score points in arguments, rather than to aid thoughtful discussion.
          This is a straight-talking book about the numbers. The aim is to guide the reader around the claptrap to actions that really make a difference and to policies that add up…”

        • flashlight joe
          Sep 17, 2019 at 11:48 am

          “I would like to see an analysis of energy and energy sources required to produce various ‘green’ products including those that generate and those that consume energy.”

          Businesses do this all the time to determine the best use of resources.

          Too bad the pricing system is corrupted and human labor is taxed instead of taxing petroleum, pollution, plastics, pesticides, and poison. The whole tax system distorts prices and behavior, even without considering the distortions of the central bank.

        • Dale
          Sep 18, 2019 at 7:14 pm

          Thanks all!

      • char
        Sep 16, 2019 at 8:20 pm

        Intermittence isn’t solved by coal or nuclear but gas and hydro.

        Consumers pay high rates but big electricity users not because they don’t pay the high energy-wende taxes, They can even profit from it if they can change their demand to only the times that the sun is shining, wind is blowing and then the price of electricity is cheap. The average only goes up so much because the price during sunless, windless times is so much higher.

        Price of electricity is more a question of legacy nukes, hydro, demand movable in time and the price of gas. Germany scores badly on all four. That explains their high rates

        • c1ue
          Sep 18, 2019 at 9:59 am

          Sorry, but your comment is totally wrong.
          There is a direct correlation between percent of renewable electricity generated vs. overall electricity and price of electricity.
          Denmark and Germany have some of the highest electricity rates.

        • char
          Sep 20, 2019 at 11:03 am

          You are more likely to support new renewables if you import your energy, like Germany and Denmark. You have the correlation wrong. It is not because they invested in renewables that their electricity is high but because their electricity is expensive (because imported) that they invest a lot in renewables.

      • MarkinSF
        Sep 16, 2019 at 10:55 pm

        How are solar panels renewable? Of course they originally require fossil fuels to manufacture but the idea is to run manufacturing plants off of solar (and this is already happening) and thus wean off fossil fuels. If this idea would have taken hold 30-35 years ago when the large oil companies knew from their own scientists that we were creating a greenhouse effect we could have been well on our way.
        And it’s way more than solar. Hydroelectric dams, wind turbines, advances in harnessing the energy of ocean currents.
        California has taken the lead in mandating that the energy sources from clean energy be 100% of electrical energy by 2045. After resistance (from fierce lobbying efforts of the Fossil fuel industry) other states are now full on with going green. North Carolina produced over 7m megawatt hours last year (enough to power over 600,000 homes).
        We are seeing big opportunities in Texas, Georgia, Ohio, etc. Think our Department of Defense isn’t making significant investment in solar? Almost every base in America will soon be running on Solar.
        The world cannot go on burning up what is essentially millions and millions upon millions of years of stored carbons over the course of a few hundred years. And the US is squandering the opportunity to be a major player in the build out of this revolution – but China isn’t.
        The Chinese government subsidized the panel manufacturing industry and the Chinese now virtually own the industry. While we were subsidizing war profiteers in the Middle East and beyond.

  6. Lucky Chicken
    Sep 16, 2019 at 5:14 pm

    Very good article. I thought I was the only one who had caught on to the fact that the USA was a petrochemical state. Yes, oil prices going up are good for both US GDP AND the dollar.

    So a middle east war would now have the effect of sending the dollar into the stratosphere.

  7. Old Engineer
    Sep 16, 2019 at 5:29 pm

    I find your comment that “…the net effect on the economy is still positive…” a bit curious. From the academic, and purely abstract point of view that may be correct. But from the micro-economics of each family whose incomes have been static for several years, I don’t think that is accurate. For these people, their finances are a zero sum game. If the cost of gasoline goes up significantly for a significant period of time, something will have to give. An increase in auto loan delinquencies, an increase in missed mortgage and/or rent payments, an increase in credit card payment delinquencies, etc. Reductions on discretionary spending (think Amazon and food) as well as medical care. And if that doesn’t eventually bleed over into the academic GDP numbers, then it goes to show how useless those numbers are at actually indicating the economic health of the population.

    • Rat Fink
      Sep 16, 2019 at 5:42 pm

      Google search: impact of high oil prices on the economy

      Oil price increases are generally thought to increase inflation and reduce economic growth. In terms of inflation, oil prices directly affect the prices of goods made with petroleum products. … Increases in oil prices can depress the supply of other goods because they increase the costs of producing them.

      Sure some jobs are created and oil producers make money but that is a very tiny sliver of the American economy.

      Everyone outside of the industry suffers.

      • Sep 16, 2019 at 8:16 pm

        Everyone outside Finance and Insurance suffers when Finance and Insurance is doing well. That’s by far the largest industry in the US — and the most profitable, and it’s booming, sucking the most money out of everyone else.

        That’s how it works. But there are many industries. Everyone is in one industry and outside the others — gaining over here, and paying over there.

        At least the shale oil industry, as you pointed out correctly elsewhere, is losing money. It’s handing out investor money. In other words, it is adding money on net (via losses) to everyone else (cheap energy), instead of sucking it out via profits.

        • Old-school
          Sep 17, 2019 at 1:43 pm

          What gets under my skin is by choice I live a very modest life and therefore my energy consumption is pretty small.

          It seems a lot of wealthy people like to preach about the utopia they would like to see increasing my cost of energy while their energy footprint is 100 times as large at least. Do they not see the carbon foot print from building or remodeling three 15,000 sq ft homes and jetting back and forth. Do they think a brick or a piece of glass rains from the sky?

      • flashlight joe
        Sep 17, 2019 at 11:54 am

        Google results and wikipedia information are not good research sources for information involving controversial issues or business interests.

        Read a book. Many books. Then make a judgement.

    • Sep 16, 2019 at 5:46 pm

      Old Engineer,

      You really need to try to understand just how huge and important the oil-and-gas sector has become in recent years to the US economy. This includes manufacturing, finance, insurance, other services, etc. Much more important than buying consumer doodads from China.

      Plus, while there are some consumers that are hurt when they have to spend $50 a month more on gas, and thus they might cut back elsewhere by $50, and so this is net even — many Americans are doing very well, and higher gas prices don’t impact their other spending at all, and they end up spending more — and this is a net plus.

      • Rat Fink
        Sep 16, 2019 at 6:10 pm

        Agree it is massively important.

        But here’s the catch. Shale is cash flow negative.

        Without suckers pouring billions into the industry it would not exist.

        So essentially what we have is a massive fake ‘pillar’ of the US economy.

        Shale ranks right up there with Wework, Tesla, Uber, Lyft, Slack etc etc etc…. all businesses that by all rights, should have collapsed long ago. They should not exist. But they do.

        Herb Stein : ‘what cannot go on – will stop’

        As for Americans are doing well, that’s also fake. When you see your neighbour arrive with a new 75k pick up truck hauling a 150k boat you might think he’s doing well.

        But if you had a look at his monthly credit card bill and repayments on the toys, you might think otherwise.

        House of Cards comes to mind.

      • Old Engineer
        Sep 16, 2019 at 6:24 pm

        And you may be right. But I am increasingly uncomfortable with a national government that increasingly represents only the interests of the many Americans that are doing very well by subsidizing businesses that benefit those doing well even while shrinking that percentage of the total population. The fracking business is heavily subsidized by the low interest rates controlled by the Fed. And even still, without “force majeure” events wouldn’t be making much of a profit. And although I’m sure you can explain how that contributes to the economy, I don’t understand how it contributes to the long term health of the nation. Especially as the number of those who aren’t doing well grows. I just don’t see how this ends well. And the explanation that this is “the best of all possible worlds” eventually didn’t work with the French peasantry and it will eventually cease to work here.

      • GP
        Sep 16, 2019 at 6:43 pm

        It would be a big leap of assumption – that the extra $50 spent on gasoline is $50 not spent on Chinese imports.

        How do we know that $50 is not coming from monthly savings or worse credit card debt?

        Kinda similar to the broken glass fallacy.

        • char
          Sep 16, 2019 at 8:34 pm

          It is not $50 spend on Chinese imports. It is $50 spend on goods imported from China, only a part (50%?) goes to China. Other half stays in America so even that would have negatives in the US

        • GP
          Sep 17, 2019 at 1:19 pm

          Char,

          There is also a broader point – may be I will bring it up for discussion in a future post.
          It’s the sentiment that spending more is for the greater good – perpetrated by Keynesians.
          Thrift is a virtue. Unless the money is stuffed under the mattress, it remains in circulation and gets invested (directly or indirectly) – hence helping the economy.

    • c1ue
      Sep 18, 2019 at 10:03 am

      You focus on the proverbial “typical family”, but fail to address the overall economy.
      When you import oil. the money flows through maybe 2 sets of hands: the oil refiner, the oil distributor, then onwards to the foreign nation.
      When you pump oil in the US – you pay the driller, the land owner, the pipeline operator, the places housing and feeding the drillers/land owners/pipeline operators. The profits and savings of the drillers, for sure, go into the local economy as spending.
      This is what velocity of money really is.
      So yes, while the “typical” family will lose disposible income due to higher gas prices, anyone and everyone remotely associated with oil production gains.
      Overall, the economy gains.

  8. Gandalf
    Sep 16, 2019 at 5:43 pm

    Thank goodness for all the easy money and speculators financing the fracking industry (*sarcasm*).

    Re: banning fracking – Warren is a true hybrid politician – about half her ideas are really really good, half are totally bad and idiotic

    Natural gas is a byproduct of almost every well drilled, to varying extent. Most oil wells, especially the ones in the Middle East and Third World countries which have none of the infrastructure capable of transporting, storing, or using natural gas, or converting it to LNG and shipping it, simply burn off this gas at the oil wells. What a waste of a non renewable resource

    The Obama administration had put forth a regulation that would have required newly drilled wells to all have the ability to capture and store this natural gas. This would have raised costs for drilling new wells and probably depressed natural gas prices even further. And so of course Trump deleted this rule before it was ever implemented.

    Helium, btw, is also a byproduct of natural gas production. Back when the US government actually planned ahead, a US Helium Reserve was established – this was when blimps were still important in war and air defense planning. As a result, the US is still a world major producer of helium.

    The main component of natural gas is methane. With only one carbon and four hydrogen atoms, natural gas contributes far less CO2 to global warming than coal

    China is currently the world’s #1 producer of CO2 (total), and this is because it has huge coal deposits and little oil and gas and so coal fired power plants remain its primary source for electrical power

    • nick kelly
      Sep 16, 2019 at 11:02 pm

      If Helium was byproduct of all natural gas, Alberta would be a source. It isn’t. The only natgas Helium rich wells are in the US, where even there the vast majority of wells do not qualify.

      • Gandalf
        Sep 17, 2019 at 1:31 am

        au contraire, nick kelly

        Dunno about Alberta, but Saskatchewan/ Western Canada’s gas fields do contain plenty of helium. What happened was those frugal sensible Canadians stopped helium production when prices dropped in the 1970’s

        https://www.pipelinenews.ca/news/local-news/helium-drilling-supported-by-sask-geological-survey-1.23400758

        Blimps have pretty much disappeared except for parades, but helium is now widely used in MRI scanners and other high tech applications (e.g., helium filled hard disk drives), and of course, party balloons.

        When helium prices shot up in 2017 due to a shortage caused largely by the loss of one-third of the world’s supply from Qatar (Saudi Arabia had blocked shipment of Qatar’s helium through its ports – Qatar eventually got around this blockage by shipping through Oman), the Canadians started up exploration and helium processing from their gas wells again. As of 2018, Canada produces 1 million cubic meters of helium per year, tiny in the world supply of helium, but it is growing

        http://theconversation.com/exploration-in-western-canada-could-hold-the-answer-to-the-global-helium-shortage-117535

        https://www.statista.com/statistics/925214/helium-production-worldwide-by-country/

        https://www.aljazeera.com/indepth/interactive/2017/07/helium-production-world-170726095826950.html

        This points out the wisdom of the US government in establishing the National Helium Reserve in 1925, which jump started the helium extraction industry by guaranteeing the oil industry a steady buyer for helium gas. Helium leaks from practically every container, and so yes, you have to keep replenishing any reserve supply, e.g., MR scanners.

        Qatar, of course, could decide to invest in whatever it wanted to, profitable or not, and did – becoming the second largest world producer of helium after the US

        The helium in natural gas comes from radioactive decay of uranium and thorium in the rocks around the oil/gas deposit. A more detailed explanation

        https://geology.com/articles/helium/

        • char
          Sep 17, 2019 at 8:56 pm

          I assume that in Qatar helium is a by-product of liquefying natural gas and i always find it incorrect to speak of profitable with by-products. You make money with them and enhance the total profitability.

  9. BrianC
    Sep 16, 2019 at 5:45 pm

    If the US can be energy independent, why then are we still playing the game of thrones in the middle east? Is it to maintain the petro-dollar? Why can’t we fast forward to the part where we hand over the ruinous security and diplomatic responsibilities to those who continue to depend on middle east oil?

    • Just Some Random Guy
      Sep 16, 2019 at 6:03 pm

      Every Dem candidate running for president has said they want to ban oil drilling completely. Ask them.

      • nick kelly
        Sep 16, 2019 at 11:08 pm

        BS. Give us the quote where Biden (for one) says that. I’m asking you.

    • Dale
      Sep 16, 2019 at 7:54 pm

      I’ve been wondering the same thing for several years.

      Apparently it is because China (the main beneficiary) and Europe are such great allies.

    • timbers
      Sep 16, 2019 at 8:44 pm

      “If the US can be energy independent, why then are we still playing the game of thrones in the middle east?”

      Bingo. Exactly what I started thinking as I read Wolf’s articles about our, what is essentially, fossil fuel independence.

      One guess: The Military-Industrial-Security Complex. Trillions and billions of dollars at stake. They don’t make nearly as much $ when win wars, only when we never do and they never end. And they donate to both parties, both of which are pro eternal wars.

      I’ve read it is in Saudi Arabia’s interest to end it’s war on Yemen, because it can not protect it’s oil fields at least in the short term. But if S.A. persists and it’s oil proaction continues in decline, the Fed may be jarred out it’s at-the-moment obsession with Global Economies and to start paying to possible inflation.

      • Dale
        Sep 16, 2019 at 9:24 pm

        Interesting. My cousin is retired military, and he says the philosophy is ‘keep it broken, keep it funded’.

        I’ve spent my time in combat (unlike my cousin), but got out, and I really don’t understand how that can be a thing.

    • fajensen
      Sep 17, 2019 at 5:17 am

      1) Because the only 100% US-based industry remaining in the USA is the Military / Security Complex and it needs threats, conflicts and wars to justify the billions going into it every financial year.

      2) Because, seen from a US “global dominance” perspective, it is much better to simply waste all of the oil by burning it off in F-150’s, than it is to let The Competition (everyone, these days) have access to it. The costs are really nothing, it is all paid for with printed money and the USA will of course just default on their USD obligations when it becomes expedient to do so. May take time, but it will happen.

      3) Israel. Imagine if China, Russia or even the EU are “providing security” in the Middle East. None of those actors would care a fraction of what the USA cares about Israel. The USA abandoning the Middle East means at least some degree of abandonment of Israel, the degree depending on who “takes over”.

      —-
      The first steps in the Scandinavian energy independence from the Middle East was exactly the idea that perhaps it is not so clever a strategy that we base our property on a bunch of nutters and failed states. This came about in 1973, when Saudi Arabia got miffed over support for Israel and wouldn’t sell us oil for a year. We had no driving on Sundays to save fuel and massive programs to insulate houses for decades after.

      The USA didn’t suffer any of this inconvenience due to internal resources and, possibly, the USA was never really scared of any Arabs because, if it goes down to the line, the USA would just replace the uppity ones with a new bunch, who, having seen exactly what happened to the last lot will keep the oil flowing (This lesson was lost to the cabal running the Iraq war because they caught religion – Wahhabism or Principles, it’s hard to tell).

      Interestingly enough, that oil embargo backfired spectacularly because it scared a complacent and lazy Europe into prioritising disentanglement from the Middle East. Eventually OPEC was reduced to a small resource-extraction economy the size of Belgium (there are graphs on UNHDR).

      There is nothing like a good threat to move things forward. The USA feeling not threatened by anything, really, is one of the reasons why everything is going backwards at the moment.

    • flashlight joe
      Sep 17, 2019 at 12:07 pm

      The U.S. energy cartels wants the energy for the same reason the drug cartels want the drugs – not too use but to sell and control the market.

      Plus the U.S. government wants the energy to operate the war machine.

      This is why our foreign policy resembles that of the drug gangs or Al Capone – blow up your business competitor and buy him out for pennies on the dollar.

      But try to do this by financial power and negotiation before resorting to violence as it is cheaper. If this does not work, then make them an offer they can’t reuse.

  10. David Hall
    Sep 16, 2019 at 5:59 pm

    ABC news reported Iranian cruise missiles were part of the attack. Iran has threatened to attack US bases in the region, if Iran is attacked.

    There is limited pipeline capacity in the near term. Some oil companies are cheap after what seemed like a glut of oil caused people to sell oil companies. I remember the oil spike after the invasion of Kuwait. I remember gas lines with the Arab oil embargo.

    Iran threatened to block the Straits of Hormudz. They attacked a few ships there.

    I hold some oil company shares as insurance against Iran trying to inflict pain. This outage might last months.

  11. Just Some Random Guy
    Sep 16, 2019 at 6:05 pm

    The very same people here who whine about a lack of good solid jobs, want to destroy the oil/gas industry that routinely pays $100K salaries.

    • char
      Sep 16, 2019 at 8:39 pm

      Good, solid job.

      It is the solid part which is lacking in the oil industry

    • Nicko2
      Sep 17, 2019 at 12:42 am

      Good news, renewable energy industry provides far more sustainable jobs.

      • Just Some Random Guy
        Sep 17, 2019 at 11:30 am

        I heart Solyndra is hiring a lot of people these days.

  12. Nick Maier
    Sep 16, 2019 at 6:07 pm

    If Iran did attack the Saudi’s, does that make the case that the Iranians did the US a huge favor by increasing the price of oil for our frackers? Doesn’t this make us even more energy independent?

    • Prairies
      Sep 17, 2019 at 11:24 am

      It does make me want to question the whole story on “who dunnit?”

      Plenty of oil producing countries have something to gain, Iran seems too convenient of a target given the turmoil.

      But for now, let the prices climb a bit. Need something positive to talk about and hopefully not see another war over oil. Tired of seeing everyday people being destroyed by the few powerful elites over something so trivial (everyone is sitting on oil – some is just easier to access).

  13. Jason
    Sep 16, 2019 at 6:09 pm

    This is an insightful article.
    I admit, this angle hadn’t occurred to me.
    Now that you lay it out, it is abundantly clear why Trump hasn’t opened the spigots of the spr.

  14. a reader
    Sep 16, 2019 at 6:09 pm

    “But this isn’t 2007 anymore.”

    What’s changed then? Wasn’t the oil in the ground before 2007? Wasn’t the technology for extracting it available?

    Please don’t tell me it was the unwillingness to provide capital to the shale development.

    • Sep 16, 2019 at 8:32 pm

      Improvements in technology — and they’re still going on. This is a very tough business with lots of failures. But there is a lot of money on the table, and there is an enormous amount of research being done, constantly, to improve the technology.

      • c1ue
        Sep 18, 2019 at 10:07 am

        I’ve talked to people in the oil business – not shale operators themselves, but deep sea drillers who compete in the same commodity market.
        These people said that the main problem for shale is costs. The amount recovered per well is much smaller than conventional or deep sea plays – so the cyclical nature of drilling costs really hurts them.
        Specifically: when oil was over $100/barrel, the shale operators weren’t cash flow generating because the drilling gear, the drillers, etc were all so high demand that costs were outrageous.
        However, the bigger operators were cash flow positive at least from 2014-2017 despite relatively low oil prices because drilling demand, hence cost, fell.
        Overall, there are still a lot of operators who can’t make money fracking oil no matter what the price is – that’s what drags down the overall industry performance and also hurts the ones who are competent – because they directly impact drilling gear/personnel demand hence costs for everyone.
        Don’t know if this is true, but it certainly sounds realistic to me.

  15. unit472
    Sep 16, 2019 at 6:26 pm

    I’ll let the actual oil producers figute out their break even point. They probably have a better idea of that than those commenting here. What concerns me is where does that incident stop. Trump may not want a war with Iran but Saudi Arabia may well give him one. MBS can’t just let this go unanswered. If he does nothing he stands a good chance of being overthrown which could turn SA into another Libya. He’s got to at least take out Kharg Island and other Iranian oil export terminals which invites another Iranian attack. At some point the US is going to have to take out the Iranian regime or just let the rest of the world do without oil.

    • backwardsevolution
      Sep 17, 2019 at 3:02 am

      unit472 – Iran had just been given hope by President Trump that sanctions might be eased, so it doesn’t make sense that Iran would jeopardize this possibility by bombing Saudi Arabia.

      The world doesn’t have to “do without oil”. Ending the sanctions against Iran and Venezuela would go a long way to flooding the market with oil and decreasing the price. Whoops, maybe that’s exactly what they’re trying to avoid?

  16. ultra
    Sep 16, 2019 at 7:13 pm

    What matters is not US production of oil, but the world’s production of oil relative to worldwide demand. Oil is a globally traded commodity, so the difference between 2007 and 2019 is not as great as Wolf imagines.

    While US production of oil has increased, other important oil producers have declining production, such as Venezuela, Mexico, and Iran. Furthermore, because of rapid economic growth in China, India, and other parts of the world, demand for oil has increased. As a result of these factors, we could see $5.00/gal. gasoline should the problems in the Middle East spiral out of control.

    • Gandalf
      Sep 16, 2019 at 8:29 pm

      ultra,
      Different refineries will be affected differently
      WTI (West Texas Intermediate) crude oil trades at a discount (ie, it’s CHEAPER) than Brent or other world oil prices because of the relative glut of fracked oil. Most fracked oil is of the “sweet light” variety, meaning low sulfur and tars, high in the short chain hydrocarbons found in gasoline.

      Many US refineries had long ago converted to use the heavy sour Saudi and Venezuelan crudes and can’t use this sweet light crude. Converting back to make use of the cheaper fracked oil hasn’t happened yet, mostly because the oil refinery segment had become a relatively low margin industry, prompting many majors to divest them to independent companies like Valero. So these refineries have continued to import foreign crude

      The difference in crude oil price has already made these light sweet crude refineries more profitable – it may also tamp down the full impact of a global oil price increase

      • David Hall
        Sep 17, 2019 at 3:54 am

        Gandalf, there are some refinery conversions underway, but this will take time.

        A small percent of global ethane production may have been affected by the attack. This is used as feedstock for chemical and plastic mfg.

    • char
      Sep 16, 2019 at 8:51 pm

      Venezuela and Iran don’t have a production problem but an export problem. The US is making it very hard for them to export oil. But together they could in short order export what Saudi Arabia lost in production if the US stopped the economic war

      • Gandalf
        Sep 17, 2019 at 1:54 am

        Venezuela does have a major production problem, caused by a combination of the sanctions, the ongoing political crisis, and outright corruption, and incompetence. Also, US refineries had developed processes to refine its super heavy crude. but other major markets that might be willing to skirt the US sanctions (e.g., China) can’t use it readily and Venezuela now lacks the means to do blend the super heavy crude with lighter crude.

        https://venezuelanalysis.com/news/14654

  17. Rat Fink
    Sep 16, 2019 at 8:39 pm

    Wolf – is there some reason you deleted this comment?

    • Sep 16, 2019 at 9:39 pm

      Rat Fink,

      You’re playing games with my commenting guidelines, particularly #3, which starts out this way: “3. If about 5% of the comments under one article are yours, it’s time to back off. So if the article has 80 comments and 4 are yours, it’s time to slow down.”
      https://wolfstreet.com/2017/10/07/finally-my-guidelines-for-commenting/

      Of the first 25 comments, 10 were yours. So when I noticed it, I put a brake on it. Then you got around the brake by changing the login, and that worked a few times, and then I blocked that login, and then you signed in as an entirely different persona to get around the block.

      Stick to the guidelines if you want to comment. You don’t get to dominate the comment section.

      • Tom Pfotzer
        Sep 17, 2019 at 10:44 am

        Well done, Wolf. This quality of moderation is one key reason your comments section is worth reading. The other reason is because you tend to debunk the bunk. It’s hard work, and well worth it. Thanks.

  18. Ron
    Sep 16, 2019 at 9:37 pm

    One thing is clear the U.S. and its allies were caught completely off guard by this attack.
    The idea that Middle East Oil is safe, reliable source of oil has been wiped off the table !

    • California Bob
      Sep 16, 2019 at 10:43 pm

      re: “One thing is clear the U.S. and its allies were caught completely off guard by this attack.”

      Yep. For more info and the ramifications see:

      https://www.thedrive.com/the-war-zone/29874/the-strike-on-saudi-oil-facilities-was-unprecedented-and-it-underscores-far-greater-issues

      • Ron
        Sep 16, 2019 at 11:26 pm

        Interesting article, thanks

        I did not realize this was a low tech attack but it further illustrates how vulnerable the Middle East Oil infrastructure could be to wide spread attack. It is a new reality in the Middle East oil patch.

        • DarR
          Sep 18, 2019 at 10:32 am

          We are led to believe the attack is low tech but was it?
          Here’s a photo.
          https://i.cbc.ca/1.5287473.1568755284!/cpImage/httpImage/image.jpg_gen/derivatives/original_780/persian-gulf-tensions.jpg

          This image provided by the U.S. government and published by CBC Canada shows damage to the infrastructure at Saudi Aramco’s Abqaiq oil processing facility in Buqyaq, Saudi Arabia.
          The attack deployed last Saturday are believed to have been GPS-programmed to hit those exact spots. Notice they’re on the northwest side. Iran is located on the far east and Yemen is on the south. Who in that area has stealth attack hardware with pin-point accuracy?

          A war would not serve the US given the high level of debt worldwide. High oil prices would collapse an already fragile global economy. The president is wise to not escalate this especially if Iran is not guilty.

        • Sep 18, 2019 at 5:50 pm

          DarR,

          Please don’t use my site to spread totally unsubstantiated rumors, speculations, or ideas, especially when it comes to the topic of war or potential war.

  19. TheDreamer
    Sep 16, 2019 at 10:29 pm

    This is interesting analysis – but I think the geopolitical angle here is being understated, not just here but in the media at large. This attack has shown that relatively inexpensive drones can be used to disable large swathes of the global economy and getaway, in an instant and it has been noticed. This does not bode well to a hyper centralized system’s or connected network’s long term health. It also suggests security costs will likely skyrocket (lowering profits or increasing price).

    Secondly – of American consumer spending (direct or indirect) 20% or so seems to be oil (gasoline, energy, chemicals, foodstuffs, and transport, goods, services – basically everything) is the rule of thumb I’ve heard in the past. American consumers are highly sensitive to the price of gasoline psychologically, even if it doesn’t make a huge dent in their wallet. My neighbors are already talking about noticing gas prices going up .10 cents here, and some stations are up .20 cents. On an individual fill-up, such a difference may be negligible to many ($2-5), but can add up quickly if you have a long commute (particularly at lower wages) and its psychological impacts are profound. While you do raise a good point that the US is potentially largely insulated production-wise from the larger markets if oil suddenly is back above $100+ I’m not sure the contributions to GDP will help psychologically – particularly in a coming election year and large swathes of already frustrated population. May help some in the oil and gas country, but in such a scenario many are likely to find this another cause to be angry.

    People in colder climates may be wise to lock in their heating oil contracts now for winter, just in case – as the average northern home uses around 19 barrels for heating in an average winter. Many companies will allow you a clause to get the lower price – if it becomes lower for a small fee.

    • c1ue
      Sep 18, 2019 at 10:16 am

      Sorry, but your analysis is too focused on sentiment vs actual numbers.
      The amount that the typical family spend on gasoline is under $2000 – which is 2.4% of overall household spend.
      A 50% increase in gas prices means, at most, $1000 less disposible income.
      This sucks but doesn’t affect the typical household enough to matter, short term.
      Put another way: said typical household spends nearly $5000 on health care, which is 8% of household spend. Do I really need to talk about how health care costs/spending has increased dramatically?

  20. Shawn
    Sep 16, 2019 at 10:52 pm

    When I think of who has to most to gain by attacking Saudi oil refineries and by de facto, starting a war with Iran, I simply consider which countries who are actors in this regional conflict have upcoming elections.

  21. 3Fingers
    Sep 16, 2019 at 10:55 pm

    1. The three grades historically have not traded with a large discount between them because many of those barrels were being blended with other grades, David Lamp, chief executive of CVR Energy Inc said in an earnings call late in April, but that is starting to end, he said, because of fewer markets for those barrels so far.

    “Ultimately, these (discounts) continue to spread as more and more lights are produced, and they have less and less places to go,” Lamp said.

    2. Several Wall Street investment banks have already warned that the escalating U.S.-China trade war raises the odds of an economic slowdown and subsequent low oil demand growth. Some banks have already cut their oil demand growth estimates for this year, saying that oil demand could grow at its slowest pace in at least half a decade.

    3. https://www.oilmonster.com/crude-oil-prices/east-texas-condensate-price/29/27

  22. Broken Clock Capital
    Sep 17, 2019 at 12:43 am

    Demand for gasoline is incredibly inelastic, consumers will pay anything, gas prices are below 2007 levels, high prices will discourage usage and boost energy shares which have been lagging miserably. $15/gallon gas should be govt policy. $CRC!

  23. Nicko2
    Sep 17, 2019 at 1:48 am

    People wonder what a Black Swan event is…..this is that.

    • Xabier
      Sep 17, 2019 at 3:58 am

      Black swans, we’ve been hearing about them since forever.

      Along with that tedious and inelegant phrase ‘Skin in the game’.

      Why does no one ever mention the Pink Flamingo of Doom: that’s the one to watch out for, believe me……

      • MC01
        Sep 17, 2019 at 9:05 am

        My grandfather had four Black swans in a pond on his farm. They cost him a small fortune but he reckoned they’d pay themselves off many times over by multiplying themselves: according to the guy who sold him the swans there would be a boom in water fowls of all kind to enliven garden ponds “in the near future”.
        Turns out there was no boom in swans, black or otherwise, and to add insult to injury the damn birds had quite the temper and failed to lay a single egg before being turned into ultra-expensive pâté.
        How’s that for a Black swan event?

        Do you prefer other feathery disasters? My grandfather was an expert at it and among other things he attempted raising and breeding Rheas, peafowl, Golden pheasants, some type of ultra expensive goose… every single attempt ended in an expensive farce.
        I don’t remember seeing flamingoes on the farm but rest assured had they been available they would have found their way into my grandfather’s avian collection of economic disasters.

        • RD Blakeslee
          Sep 17, 2019 at 11:48 am

          My wife brought some black chickens with her to our union. They were evidently inbred – she got them from a disorganized flock of everything avian in Virginia – all intermingled and “free love” everywhere. The had malformed feet, produced small eggs and died young.

          Fortunately, “Grandfather” was engaged in other enterprises, all eminently successful.

          “Grandfather”

  24. Nick Drozdowski
    Sep 17, 2019 at 5:06 am

    None of this will matter in 0-3 years, as AGI melds with quantum computing and produces a god we can talk to and get answers. Will it be a benevolent and human friendly god? Depends on who developed it. If we do, probably will ignite wwlll as China /Russia would not stand still for a US developed god that very quickly controls everything and everyone.

  25. John
    Sep 17, 2019 at 5:41 am

    Great article Wolf! Drill baby drill! Our country is definitely in a better place.

  26. Augusto
    Sep 17, 2019 at 7:43 am

    I used to work in the Oil Industry, and what was key the last few years was how much everything was driven by technology. Fracking was a big part of that. Formations where for decades everyone could see the hydrocarbons in the core samples but we lacked the technology to produce from it. Now many of those shales do produce, with many more to be produced from (like from clays) or increased recovery rates via tech. The death of the oil industry has been greatly exaggerated. The question for me really is how much carbon, heavy metals and other elements we can spew into the world before we kill ourselves.

    • Sep 17, 2019 at 9:44 am

      My theory is that we will run out of clean air to breathe before we run out of hydrocarbons to burn :-]

      • Augusto
        Sep 17, 2019 at 2:05 pm

        You are probably right. The Earth’s crust is literally soaked or permeated with hydrocarbons, gas, oil and coal. Running out of hydrocarbons is just a 1970’s sci-fi fantasy. Its really just a question of cost or cost effectiveness, which is where alternatives come in…if they work, can be scaled and are cheaper, wind, solar, geo-thermal, tidal, fusion,…well then….hydrocarbons will follow wood, wax and whale oil to ash heap of power history….

    • Rat Fink
      Sep 17, 2019 at 4:26 pm

      There is indeed a lot of oil in the ground but the problem is that the amount of energy (cost) to get it out of the ground is too high.

      ‘In energy economics and ecological energetics, energy returned on energy invested (EROEI or ERoEI), or energy return ‘on investment (EROI), is the ratio of the amount of usable energy (the exergy) delivered from a particular energy resource to the amount of exergy used to obtain that energy resource.’

      In a nutshell, the energy return is the energy available to power civilization. The energy available to manufacture, to build roads and bridges, to pay salaries of workers, to run schools, to heat homes, to power all sorts of vehicles, etc…

      With shale and other unconventional energy, the ratio is too low to allow us to maintain our civilization.

      Fortunately we still have reserves of conventional oil which do provide a good nett return on energy, but when you combine that with the new sources of energy, you get very close to STALL SPEED overall energy returns.

      And that is why the global economy is convulsing. That is why the middle class is gasping for oxygen.

      And of course conventional supplies are being run down having peaked in 2005, and increasingly low return energy is stepping in to fill the gap.

      Stimulus is to some extent mitigating the situation but as we are seeing, that has its limits.

      So ya, we will NEVER run out of oil. NEVER.

      But we will stop pumping oil, because at some point (very soon) the stimulus is going to stop being able to offset the impact of expensive to produce oil, and all those trillions of barrels of oil will remain in the ground.

      FOREVER.

      • c1ue
        Sep 18, 2019 at 10:21 am

        EROEI sounds nice but is meaningless.
        2 examples:
        1) Whale blubber. Highly prized for lamp oil. As whales became scarce, price went up and whalers started harvesting from further and further away – to the point where voyages would be counted in years of duration. It only stopped when oil, then electricity came into play to replace the whale oil lamps.
        2) Peat. The Dutch heyday was significantly due to energy in the form of burning peat. This energy made the famous Dutch ceramics prized by Barbary Coast pirates to Russian countesses to British aristocrats. Also great for refining sugar (the cocaine of that era). Peat demand was so great that the Dutch developed methods of harvesting peat underwater – there are fields in the Netherlands where you can see the large block shapes where the subsurface harvesters cut out blocks, which were then put out to dry, before burning. This mostly stopped only because the British figured out how to use coal to do the same thing, and they had a lot more coal. Coal is incidentally why the first internal combustion/steam engines were created.

        • char
          Sep 19, 2019 at 5:40 pm

          Whale blubber was used as light-source, not for its heat so EROEI is meaningless and peat has a high return on EROEI. it takes about the same work to get a brick of peat as to get a log of wood.

          EROEI is a nice concept but with a few big astrix’s

  27. IslandTeal
    Sep 17, 2019 at 10:44 am

    Shawn hit it right on the head with “who has an election today” and coincidently has the most to gain from the “attack” on Saturday…. JMO

  28. JamesF
    Sep 17, 2019 at 11:05 am

    Oil prices in the range of $65 to $70 is good for the USA, they have been too low. We need our producers to make a profit, yet not squeeze the consumer too much to impact consumer purchasing that is keeping the economy humming despite tariffs which are hurting way more than a 10% spike in oil prices. We don’t need to get ourselves involved in a costly war to support Saudi Arabia as we don’t need their oil. We need to focus on the stability of the Mexican government and their oil industry, not the middle east.

  29. OutLookingIn
    Sep 17, 2019 at 11:20 am

    Washington War Hawks On The Warpath

    It was Iran. Without question Iran. Iran is a warmonger. Iran is a terrorist country. Iran is a rogue nation. We must bomb Iran.

    Each time Trump seeks to calm down the radicals, looks for accommodation or to ratchet down the war talk, another false flag is flown over the scene for the MSM to whip the dummed down masses into a blood rage war frenzy.

    The deep state and their military industrial complex, desperately want war with Iran to cover their economic malfeasance. Besides war is good for business.

  30. BenX
    Sep 17, 2019 at 12:41 pm

    It’s repugnant to me that the US military awaits the Saudi Kingdom for orders on if, how, and when to retaliate against a Saudi enemy.

  31. Rowen
    Sep 17, 2019 at 2:17 pm

    So if high oil prices is a net positive for the economy because it shifts money from a narrow investor class to a broader working class with a higher propensity to consume, couldn’t we accomplish the same thing via taxation without having to engage in all the geo-politicking?

  32. timbers
    Sep 17, 2019 at 2:35 pm

    I’m reading lots of headlines about the overnight repo snafu, that it’s like QE, and how it’s rattling the Fed’s current trajectory.

    But I don’t really trust the sites I’m seeing this on.

    So, I’ll have to wait for Wolf Street to delve into it…it it does.

    • Sep 17, 2019 at 10:59 pm

      timbers,

      There sure has been a lot of breathless reporting on it. For a moment, I thought the financial world would blow up, based on this reporting. But the Fed used to do these kinds of repos all the time before QE. That’s how it kept is short-term rates in check. It just hasn’t done it since QE because it didn’t need to until now.

      I expect the Fed tomorrow to adjust the rate it pays on excess reserves (IOER) — meaning increase further the gap between it and the target for the fed funds rate. This will discourage banks from keeping so much liquidity on deposit at the Fed and encourage them to lend it out a little more aggressively in the money market.

      When all the collateral from the government bond sales hit the market in recent days, and some other things happened simultaneously, such as corporate quarterly tax payments that took cash out of the money market, suddenly there was not enough liquidity in that market. But there is $1.3 trillion in liquidity that banks parked at the Fed and that didn’t get put to work.

      So this shows where the problem is: banks weren’t stepping up to the plate. This can be addressed with an adjustment to the IOER in relationship to the fed funds rate target. And I expect the Fed to do that on Wed.

      • timbers
        Sep 18, 2019 at 8:03 am

        Interesting. Thanks. What was old – as in pre-QE – is new again post (well mabye)-QE.

        • Lisa_Hooker
          Sep 18, 2019 at 10:47 am

          Marvelous! You have defined two new eras for historians: BQE, before QE, and AQE, after QE. We shall now see how well things proceed in AQE.

          No amount of money can buy happiness, enough money can rent it.

  33. Just Some Random Guy
    Sep 17, 2019 at 2:36 pm

    And just like that oil is down 7%. Once again a media created and hyped panic that turned out to be a non event.

    See also the supposed recession we’re in.

  34. nick kelly
    Sep 17, 2019 at 3:33 pm

    “The sector as a whole consistently fails to produce enough cash to satisfy its voracious appetite for capital,” the report said. The 29 companies surveyed by IEEFA and Sightline Institute burned through a combined $184 billion more than they generated between 2010 and 2019, “hemorrhaging cash every single year.”

    But now fracking is good? The above is from WS from just a month or so ago.
    For sure all that blown money increases GDP, just as it does when it’s blown on a failed military project, or as it would if the government decided to build a group of pyramids.

    If spending money and therefore increasing GDP can justify a project, nothing, by definition, is a waste of money. But judged by on its return on investment (the usual benchmark) fracking looks a lot like a failure.

    Saudi is effectively broke ( the reason for the proposed IPO of ARAMCO) Russia is experiencing protests over cut backs to pensions and increases in pensionable age as Putin basically ignores the domestic economy. Oil is most of Russia’s income (gas is 20% of oil)

    With these two majors desperate for cash and with the lowest costs of production (especially Saudi) it is hard to see sustained higher prices, let alone the much higher prices needed to save the fracking boondoggle.

    • Sep 17, 2019 at 3:46 pm

      nick kelly,

      “But now fracking is good?”

      Good for whom?

      It’s not good for investors. It’s terrible for the environment. It’s not good for the Canadian oil patch that has to compete with it.

      But it’s great for consumers because overproduction has pushed down gas prices in the US (subsidized by investors); it’s great for US energy independence from Saudi Arabia (subsidized by investors); it’s great for US jobs, manufacturing, industrial production, trucking, finance (fees from bond and loan issuance, equity issuance, etc). It allowed the US to stop genuflecting before OPEC, which was a sickening thing to watch over the decades….

      • tom
        Sep 17, 2019 at 3:53 pm

        Has not been kind to coal.

        • Sep 17, 2019 at 8:33 pm

          tom,

          Correct. Coal and everything around coal – construction of coal-fired power plants, transporting coal by rail, coal mining communities etc. – have gotten hit very hard.

          But with coal, there was a second factor at play: technology, specifically the commercialization in the 1990s of the “combined cycle gas turbine,” which operates at thermal efficiencies of around 65%, compared to a coal-fired plant with a steam turbine that runs at around 35% thermal efficiency.

          The CCGT started killing coal by the early 2000s. This was before the price of natural gas collapsed due to the surge in supply from fracked wells.

          For coal, the arrival of the CCGT and then the collapse of the price of natural gas were a deadly mix.

        • c1ue
          Sep 18, 2019 at 10:25 am

          I do wonder how much of the coal decline is due to unfriendly policies from the Obama administration.
          You might remember – the first Polar Vortex (in MSM reporting) caused natural gas prices to spike to a ridiculous degree.
          Unlike coal plants, you can’t store a significant supply of natural gas.
          Note I’m not saying this was due to climate change policies, necessarily. Just as Trump gut-punched the liberal coasts with his change to the tax credits at the state level, the anti-coal efforts did the same to West Virginia but also funneled huge amounts of federal subsidy money to the coasts.
          Probably it was a combination of the above, as with most things in real life.

  35. farmboy
    Sep 17, 2019 at 8:18 pm

    Lots of truth in your title. Since 2007 the global economy has regressed to the extent that not enough money is available to the consumers to start a REAL bidding war. So eventually more oil will need to go ofline to support the price. And even then most people will never have heard of peak oil.

    Seeing the stories coming out from the media do not at all line up I will venture to guess this was orchestrated from inside the kingdom to cover over the fact that their wells are watering out and its all downhill from here.

  36. Kev
    Sep 18, 2019 at 6:26 am

    Nice article to summarize the new paradigm.

  37. Kasadour
    Sep 18, 2019 at 11:54 am

    I like to take a wait and see attitude, but oil and oil products are still subject to supply and demand economic principles (till the central bankers swoop in and start meddling) DEMAND is the problem for oil producers at this time.

    If oil goes too high (over $70 bpd), all it does is destroy demand until it comes back down to ~$40-50 range. You can set a clock to it.

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