Ebola!! ISIS!! Putin!! Yet Oil Prices Drop

Despite plenty of turmoil in several oil-producing areas of the world, crude oil prices have dropped. Russia at war in Ukraine, Ebola striking fear into N Africa, ISIS wreaking havoc in the Mid East, Libya once again in civil war, terrorists in Nigeria on the loose.  Yet oil is dropping, from 110/bbl a yr ago to 90/bbl today

There are several reasons for this strange phenomenon. One is the global economy is slowing down, Europe in brink of recession, China slowing noticeably.  Another is the large advances automakers have made in getting better mileage in new vehicles with even more to come. (100 MPG or better cars are coming soon!!).  But the biggest reason is the advance of horizontal drilling and hydraulic fracturing getting huge increases in oil production in the US.

  US citizens and the entire world should be very happy that HVHF has saved them from drastic jumps in energy prices and prices of nearly everything else because energy is a key component to just about every product made and shipped. Food is especially affected by energy prices so keeping people fed at reasonable prices is critical.

But while we should rejoice that HVHF and those evil oil companies have insulated us from the affects of global crisis, it does have a downside for landowner/mineral rights owners.  If oil prices are actually dropping if the face of multiple foreign disruptions, what does that mean for future drilling and royalties? Will companies continue to invest hundreds of millions of dollars going after new resources or will they cut back because of fears that oil will continue to drop? If oil drops under these circumstances, will it drop even further if and when things calm down? How rapidly will other countries use the new technologies to develop their own fields? Will prices fall enough that it is no longer feasible to keep leasing, keep drilling, keep building out infrastructure? 

Areas that are marginal will certainly be affected. Even some of the best areas may see a slow down in activity. And people that are already getting royalties will see a drop in their checks.

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Permalink Reply by jerry lee nichols on October 13, 2014 at 12:48pm

true,however the only way to get cash flow to address debt is to poke holes,not to mention the fact that in this area there are still leases that were bought on the cheap five years ago that will not be that way the next time.

Permalink Reply by Summer Johnston on October 14, 2014 at 5:16am

...the only way to get cash flow to address debt is to poke holes....

What a statement to speak to the devastating effects of deflation. Borrowed money, falling prices, decreased consumption--all while the debt level remains the same. 

Permalink Reply by Joseph-Ohio on October 14, 2014 at 5:33am

Trying to consider all the intervening circumstances impacting the current state of the economy - I'm also totally on your bus.

Drill baby drill.

Permalink Reply by Busy Bee on October 13, 2014 at 1:25pm
Prices will go back up after the elections are over . It happens every time .
Permalink Reply by Joseph-Ohio on October 13, 2014 at 1:35pm

Maybe even before the elections !

Who can really tell ?

Seem to me that variables abound everywhere all over the world.

Permalink Reply by bungalow_steve on October 14, 2014 at 4:29am

Just a note, the break even points people are quoting for middle east are  "fiscal break-even oil prices" to balance the national budget, Saudi's provide state jobs for everyone, (like $200K/year for middle age worker), they work from 9 to 12, get 4 hour lunch break then work a few more hours. Actual break even point is probably $20/bbl for a private company (doesn't exist though).

Permalink Reply by Dexter Green on October 14, 2014 at 4:43am

Since the OPEC states are almost entirely government owned entities the break even price is important to consider.  These numbers are also little more than educated guesses since the actual figures are held closely by the individual countries.  Still, I feel it's important to know those numbers when looking at the situation with a wide angle lens.

Permalink Reply by jason irvine on October 14, 2014 at 10:48am
Doesn't that seem funny that oil and especially gas prices usually fall before a election. You made a good point but I would like to think it is because of our drilling in the US.
Permalink Reply by jerry lee nichols on October 14, 2014 at 11:11am

Well it seems that oil contracts into April 2015 are for 82$ but the price coming out of the refinery may differ depending on outage criteria etc. So who knows.

Permalink Reply by tom dowdle on October 15, 2014 at 7:13am
I think oil prices are dropping in order to give some teeth to the economic sanctions against Russia. When Russia gives up its attack on Ukraine, prices may increase rapidly.
Permalink Reply by Trapper on October 15, 2014 at 7:30am
BINGO!
Permalink Reply by jerry lee nichols on October 15, 2014 at 8:20am

Lot of hatred there in that situation,so all we can hope for is some peaceful resolution. Hell it even caused the dust bowl.

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