Enjoying Record Low Gas Prices? Thank a Fracker!
Of the estimated 44 million Americans who will travel over the upcoming Independence Day holiday weekend (a record, by the way), 37.5 million of them will drive to their destinations. Along the way they will not only spend nearly a dollar a gallon less for gas than they have over the last 10 years on average, they will spend less on gas than any Independence Day since AAA has been keeping records. In addition, this will be the first time in nearly two decades that they will be spending less for gas in July than they did in January. On average over the last decade gas prices have been 47 cents a gallon higher on the Fourth of July than on New Year’s Day.
Consumers are always the ultimate beneficiaries of improved technologies, as producers are motivated to bring costs down to improve their profitability. But competition forces those producers to continue their quest, with their consumers enjoying the fruits of their technological improvements. It’s a concept with which that vanishing cartel called the Organization of the Petroleum Exporting Countries (OPEC) isn’t familiar. There was a time when the cartel had enough influence through its monopolistic advantage to influence gas prices in America. That was the time of the “double nickel” (federally mandated 55 mph speed limits on the country’s superhighways), long lines of frustrated consumers waiting at the gas station to fill up, odd/even days (based on the last digit of their license plate numbers) on when they could fill up, the so-called “daylight savings time” scam sold as a way to cut energy costs, and so on.
Those days are long gone, and the only ones hurting now are members of OPEC, who are running out of patience waiting for the latest “production cut agreement” to take hold in order to force prices higher.
They are going to have a long wait. As recently as 2010, American energy producers were pumping around five million barrels of crude oil a day. Today that number is over nine million, and is expected to top 10 million next year. From there, no one is making estimates. That’s because the fracking revolution — the horizontal drilling for miles into the oil-rich shale deposits that were always there, and the “fracking” protocol mixing sand, water, and a few lubricating chemicals that allows those shale deposits to be extracted profitably — is pushing gas prices down and could put OPEC out of business.
There’s also the Trump revolution, which, despite determined resistance and sabotage from angry Democrats and totalitarians who were counting on Hillary to complete the transformation of America into another socialist state, is bringing jobs back to the country and common sense to the Supreme Court. The stock market is on a tear, reflecting continued investor confidence in the future. And consumer confidence, according to the Conference Board’s latest numbers, is soaring. June’s numbers were not only ahead of May’s, but ahead of most prognosticators trying unsuccessfully to keep up.
For instance, the Conference Board reported on Tuesday that the number of those saying business conditions are “good” increased from May to June; the number of those saying business conditions are “bad” decreased; the number of those stating that jobs are plentiful rose; and those stating that jobs are “hard to get” decreased. Also, the proportion of those expecting more jobs in the months ahead increased; and best of all, the percentage of consumers expecting an improvement in their incomes rose as well.
Said Lynn Franco, Director of Economic Indicators at The Conference Board: “Consumers’ assessment of current conditions improved to a nearly 16-year high.… Overall, consumers anticipate the economy will continue expanding in the months ahead.”
The decline in gas prices is an instant, tax-free, and substantial (and to some, unexpected) bonus. Multiply those 37.5 million people driving over the Independence Day weekend by the number of fill-ups, and one comes up with a savings (a tax-free bonus) in the billions. When drivers are filling up this weekend, they can be thankful not only for America’s independence but also for the frackers who are providing them the lower gas prices along the way.
An Ivy League graduate and former investment advisor, Bob is a regular contributor to The New American magazine and blogs frequently at LightFromTheRight.com, primarily on economics and politics. He can be reached at firstname.lastname@example.org
Crude Oil to Climb to $60 a Barrel, Claim Aramco’s CEO, Citi, and Goldman
July 10, 2017 by Bob Adelmann
Claiming that the worldwide demand for crude oil will jump by 20 million barrels of oil per day over the next five years, Amin Nasser, the CEO of Saudi Aramco, said, “Investments in smaller increments such as [U.S.] shale oil will just not cut it.” Speaking at the World Petroleum Congress in Istanbul last week, Nasser said:
If we look at the long-term situation of oil supplies, for example, the picture is becoming increasingly worrying.
Financial investors are shying away from making much-needed large investments in oil exploration, long-term development and the related infrastructure….
New discoveries are also on a downtrend. The volume of conventional [non-shale] oil discovered around the world over the past four years has more than halved compared with the previous four.
Speaking to his own interest, Nasser is trying to talk up the value of his company, which remains on schedule to sell five percent of itself in what some are calling “the world’s largest IPO [initial public offering].” To stress the point, Nasser said Aramco was going to invest some $300 billion to expand its oil and natural gas production capacities, also just in time for the IPO next summer.
World oil producers are pumping about 100 million barrels of crude oil daily, and it isn’t unreasonable to expect that world demand would require 120 million by the year 2022. What’s unnerving some investors is that Citigroup and Goldman Sachs agree with Nasser. In a joint statement issued on Monday, analysts Ed Morse and Seth Kleinman wrote:
With a continuation of the OPEC and non-OPEC producer deal [to cut production] in the second half of 2017 and the expected associated inventory draw-down, we expect prices to move above $60 a barrel by the second half of the year.
However, the duo warned that their forecast was predicated on OPEC continuing its production-limit agreement; otherwise, failure to extend it would send crude oil prices “precipitously lower.”
The cartel’s problems with low oil prices and oversupply are caused by the failure of some members to keep up their part of the agreement to cut production in order to drive crude oil prices higher. The largest rogues, however, are two members that have been exempted from the production cut agreement: Nigeria and Libya. Since last October Libya has expanded its oil output by 600,000 barrels of crude every day, while Nigeria has increased its production by 200,000 barrels a day. Combined, that effectively cancels any output reduction from OPEC members who remain a party to the agreement.
There’s little the cartel can do about it. The compliance committee for the cartel meets in two weeks, and rumors are surfacing that representatives from both rogue producers will be “invited to attend” in hopes that they may be persuaded to keep from sabotaging the agreement. This could set the stage for official limitations to be placed on them at OPEC’s regular meeting in November. It could also presage a massive revolt that could spell the end of the fading cartel.
Any consideration of further cuts in the present agreement has been ruled out. Russia, a non-OPEC member that has agreed to go along with the production-cut agreement, has made it clear that it isn’t interested in any further cuts. And Mohammed Barkindo, the cartel’s secretary general, told the media attending the oil conference in Istanbul last week that any discussion of further cuts “would be premature.”
As Irina Slav, writing at OilPrice.com, expressed it: “OPEC is hard-pressed to find a way to make its deal work in the face of growing U.S. production and growing OPEC production, too. Asking Nigeria and Libya to join the cut is one obvious way to do it, yet it remains uncertain how willing these two [rogues] would be to stop expanding their output given their dependence on the commodity.”
Mitigating against a rise in the price of crude are the 6,000 DUCs — U.S. wells that are drilled but not completed — waiting to come online. Further there’s the massive new oil discovery announced by Apache Oil last September. After two years of quietly buying up land in West Texas, the company announced that its discovery — dubbed “Alpine High” — contains more than three billion barrels of oil and 75 trillion cubic feet of natural gas. If just a third of that oil and gas is recoverable, it would further increase America’s opportunity to become the world’s largest energy producer and, along the way, severely damage OPEC’s continuing attempts to push oil prices higher.
An Ivy League graduate and former investment advisor, Bob is a regular contributor to The New American magazine and blogs frequently at LightFromTheRight.com, primarily on economics and politics. He can be reached at email@example.com.