Over the years we have become way to dependant on other countries manufacturing goods and products for us. Maybe this is a wake up call to American companies to bring manufacturing back to the US.
The cost of going to a National 50th Cougar show is going down daily!!! recalculate
And our military is used to protect “our” oil all over the world as mentioned in the video you posted earlier, so I would say the dollar is backed by the military at this point.
I’m going to disagree about peak oil being BS. Yes we can extract more with new technology, but its still getting more expensive. We’ve already taken the oil that was easy to get to and that’s what allowed our economy to grow so much in the last century. We won’t ever completely run out of oil, but it will get so expensive to produce we’ll be forced to use less. Natural gas and other alternatives can offset some of the demand, but if 1.4 billion Chinese want to live like middle class Americans, there isn’t enough energy to go around.
You hear all kinds of ratios on how many barrels it takes to extract 100 barrels from the earth, “back when” it was supposedly about 1 barrel for every 100, in worse case scenarios these days you hear of one barrel consumed to extract 10. I wonder what the all in true totals are? On average at what cost does producing oil become unprofitable for Russia Vs US VS the Saudis? If we see $50 per barrel do we cut production drastically? I would agree that our dollar is backed by our military but maybe less in the last several years?
I just read a very dry and dense analysis today that stated $70/bbl is the tipping point for the Bakken formation in N.Dak. I don’t recall which benchmark they were using for price of oil (west texas intermediate, I think). Seems we’ll find out pretty soon how accurate that is.
I get the impression that the reason there are no buyers is because no one has any money.
The lack of interest in buying the T-bills might have something to do with our broken political system and the resulting inability to address long-term issues. Who would invest in a company being run this way? Unfortunately, the private equity “fix and flip” model doesn’t apply to our government.
From Wikepedia Energy Returned on Energy Invested:
In regard to fossil fuels, when oil was originally discovered, it took on average one barrel of oil to find, extract, and process about 100 barrels of oil. That ratio has declined steadily over the last century to about three barrels gained for one barrel used up in the U.S. (and about ten for one in Saudi Arabia).
So if the article is correct, oil production at lower prices becomes unprofitable for the US long before Saudi Arabia. There’s also a good chart in the article showing the EROI for different energy sources.
One thing that is missing from this analysis is the fact that in many cases natural gas is produced at the same time as liquids. That gas is used to power the process of production. In many cases the gas is “stranded” That means there is no pipeline to collect it. If the gas is not used for production energy it is sometimes just burned on site. That is why you see those gas flares on top of drilling rigs.
Finally, and this is key to whether a well stays in production, is the cash flow requirement of the operator. If you have to make payments you will produce what ever takes to get the cash you need.
Having grown up in the oil patch, about 20 miles from the Cushing hub, I have seen how the industry works from a ring side seat. I can still vividly remember what it looked like when oil dropped from $40 to $10 a barrel under Reagan. Lots of wells were shut in but there were still a lot in production because they had to have the cash.
Lots of mining operations producing at a loss the last couple of years for the exact same reason, shutting down is not an option. That works for a season but in time markets must revert to the mean or nasty things happen like deflation and de-leveraging… ANYTHING but deflation, our system only works when there is growth. “If” we get $50-$60 per barrel oil there will some very happy consumers but not for long. It seems the entire world revolves around oil so dramatic changes in supply and or price really could shake things up. During the Reagan era the derivatives market was almost a non issue, in the last decade that market has become measured in the quadrillions, backing up the bus on that mess would be tricky at best.
This is a misnomer. The dollar is not backed by oil, in fact it is not backed by anything, it’s a promissory note. A lot of commodities are dollar denominated, that is they trade based on their value is US dollars, such as oil and gold. But they do not guarantee the value or the viability of a US Dollar. You can’t trade in your dollars for oil, the same as you can no longer turn them in for gold or silver. The reason the dollar remains the reserve currency is because despite recent years, we are still the most stable economy on the planet. I seriously doubt that will change anytime soon. China certainly has the economic wherewithal to give us a run, but the bottom line is nobody trusts them.
So just when we think we’ve found a “bottom”…we hit new lows. Today WTI at just over 66. Gas futures for January at 1.79. A DOLLAR SEVENTY NINE. Amazing. Now I’m watching with a bucket of popcorn to see if Diesel finally starts dropping. It seems the strong seasonal demand for heating oil is propping up diesel.
Don and I were chatting about the effect on the classic Cougar hobby etc. last night briefly. Call me a cheap ass, but I for one just don’t get out and drive my cars when gas is 4.25. I feel a lot differently at 3.00 and certainly will look at things differently this coming season when and if it’s still there. I think it’s similar to the way we tend to save or lose cash for going out to eat, or buying a coffee, or a stick of beef jerky at the gas station when you see those 10-20.00 differences in the price of a tank of gas. I think if things hold near here Don’s business could see a real strong demand surge from the hobbyists that are excited about the possibility of driving their cars a bit more…which translates to more attention being paid to their cars and more parts being bought…
A lot of it is psychological, but a lot of it is just plain dollars and cents.
This is the most important economic stimulus we could ever ask for. It puts money in the pocket of consumers, improves their mood, And makes them think about things that they can spend the money on. In the big picture it really helps the balance of trade and makes every one feel that they just got a raise.
And at the risk of getting all political, it is also a huge shift in the geo-politics of oil. The US being less reliant on Middle Eastern oil is pretty huge. And the effect of this on Russia’s economy is pretty important.
This was one of the economic shifts that was needed for the US economy and it’s future’s survival. Now we need the ingenuity of our economy to prosper again. I am seeing it in a lot of “micro businesses” popping up everywhere in the US. The population doesn’t see it in the general press, but if you look closely at some social mediums, you’ll see people making a living manufacturing everything from tables and chairs to food products, nick-knacks, widgets, arts and crafts, cosmetics and many basic household items in small facilities, even in peoples’ garages, selling and advertising through Facebook and Instragram and Twitter, and making a go of it. I call it a revival of the craftsmanship and ingenuity that dominated the world economy back at the turn of the century up through the 1960s…hand crafted articles are becoming a “thing” again in the US. Many made at home and sold at home. This creates a lot of small business, jobs, and cashflow in locales throughout the country without a ton of recognition.
Meanwhile, back at the ranch…the GMs and Fords of the world are doing pretty darned well suddenly. To be honest, I am getting a bit sick of the press continuing to use the term “in this economy”. They could stand to be more positive about things in this country. It’s still a Hell of a good place to live and do business…
Well, I just topped off the Cougar last night with 12 gallons of pure gas / non-ethanol, since it will probably be sitting most of the time in the coming months. Still at $4.69/gal, but that is alot better than the $5.50 that it was at this summer!
The Cougar has been getting about 10mpg, which isn’t that much worse than the Cobra at 13mpg. I agree with you about driving my Cougar more. Now I just need more “not rainy” weather! Heck, I’d drive it every day if didn’t cost me $10 round trip, LOL! Premium w/ethanol is at about $3 here, that brings my commute down to about $6 a day… not too shabby.
True… And I think it matters (physiologically and fiscally) that this immediate cash infusion into every aspect of commerce DOES NOT come from a government stimulus program. On the other hand does it really come at 0 risk of creating geopolitical instability? $50 oil would make me nervous.
Fox Artical / Phil Flynn “So are falling oil prices a good or bad thing? My take is simple. Falling oil prices are a good thing as long as they are going down for the right reasons. Oil prices that were falling before the Saudi Arabia “price war” were a good thing. It was reflecting growing U.S. production and slowing demand and we saw an orderly decent in prices. Yet when you have a cartel openly declare a price war it causes panic and does not allow for consumers and producers to adjust normally. When cartels move to actively manipulate prices to try to force competitors out of business and dump oil into an oversupplied market it causes undue strain and a shock to the economic system.”
My college age daughter is cutting her teeth in small business on sites like Etsy, not making a killing but the light bulbs are going on! You will never appreciate how good we have it in the US until you compare notes with like minded entrepreneurs in other countries!
Personally, gas prices have nothing to do with how much I drive my classics. It’s all about the weather, and the length of the trip. R Code & the Mustang aren’t going out when there is a chance of rain, or if I’m going to leave them unatended for long periods. The '67 gets used quite often, and gets better mileage than our daily drivers…still, I’ll leave it home for comfort reasons, or if I have to be on phone calls. Nothing like trying to conduct business on the phone over a loud exhaust while banging gears, lol.
I like cheap gas as much as the next guy, but like Don says, I’d be able to enjoy it more if it was the result of a healthy market dynamic. All I know is I may end up real busy working my employer out of a bunch of oil patch deals if the action slows down on the drilling/natural gas extraction side. Not looking forward to that. 
Price elasticity explains a lot of what we are seeing and also the speculators are now out of the market or they are trying to short the market.
It seems from all I read that an oil price around 65-70 is needed for even the healthier US drillers and frackers to sustain momentum. This will certainly pare down the wildcatters who are leveraged heavily and sort the wheat from the chaff. I do like it as far as creating a “true” economy, as Bill said, because when governments get involved in deciding who fails and who succeeds, well…it gets messy and ultimately costs taxpayers instead of the operators who took the bad risks.
Good luck, Chris. This has to be a pretty crazy time to be in this corner of the economy!