Petroleum. Happy Days Are Here Again?

Is it back?



"Oil, that is. . . black gold. . . Texas Tea. .  "

Well maybe.  It's sort of looking that way.

Oil is holding above $65.00 bbl.  That's way below the $100 bbl+ figures that we saw prior to the last crash, and indeed it would have been regarded as a crash price as it was crashing.  But it's held steadily above $60.00 now for weeks. $60.00 is the regional threshold for profitability and things are, in fact, now beginning to occur.  Or so we hear, and we're hearing that a lot.

Indeed, the Tribune, lately reporting on the grim situation for all sorts of businesses that were weathering the oil drought, is now reporting optimistically on a huge expansion of a local gas field.  Looking at it the other way, The Economist has been analyzing it negatively for several months with observations that the price of oil is "high".  Indeed, it recently ran an article captioned as follows:

Crude thinking 

Why the oil price is so high

…and why it might not fall by very much soon.

The economist did start off with an observation that does indeed reflect  the observations many who follow the rise and fall of crude prices:

PERHAPS the most vexing thing for those watching the oil industry is not the whipsawing price of a barrel. It is the constant updating of theories to explain what lies behind it.

The article goes on to analyze that, coming to the conclusion, perhaps right or wrong, that the perception of scarcity, or lack of it, has a lot to do with market volatility.

Any way you look at it, $65.00 isn't $125.00 bbl, nor is it $25.00 bbl.  Maybe things are a little stable, maybe, for a little while, which will mean a recovery in the Wyoming economy and  will start to fill up the coffers of the state a bit as well.

Which usually means that the state pretty much instantly, rightly or wrongly, abandons discussion of alternative revenue sources and diversifying the state economy.

Indeed, one of the political candidates may have trouble with this going forward as it will, ironically, cut into her argument on the "getting the Federal Government off our backs" (or words to that effect).  Harriet Hageman has been arguing that Wyoming's economy is a three legged stool, with those legs being agriculture, tourism and the mineral industry.  Close observers, however, know that this isn't true, and I've expounded on that before.  Wyoming's economy is actually a four legged stool, sitting furniture analogy wise, with agriculture, tourism, the mineral industry and government.  We don't like to acknowledge that last one, but it's a huge factors in our economy.  In fact, Wyoming has a higher percentage of state workers per capita than any of the neighboring states (way more than Colorado, but more than Nordic North Dakota as well).  As the tax system is all based on the mineral industry, and as tourism and agriculture cannot effectively support taxes as the level required for our expenditures, when the mineral industry catches a cold the state government catches the flu.  Of course, that doesn't impact the Federal government, but right now we have an Administration that's not exactly keen on ramping up Federal employment.

Anyhow, this puts individuals with Hageman's outlook in a strange position.  Oil is recovering and it clearly has absolutely nothing whatsoever to do with regulation.  People with her point of view, however, cannot acknowledge that, as that would mean that the price of oil is purely controlled by external factors, which in fact it is.  As The Economist notes:

Beneath the dramatic ups and downs in the oil price and its changing influence on the world economy are some big themes: the rise of the shale-oil industry and how OPEC responds; the dependence of the big oil exporters in the Middle East on high oil prices; the peak in oil demand in America and eventually elsewhere. These forces will have a big say in where oil prices eventually settle.

And that's what determines how the oil industry does in Wyoming.  But if the state's rights libertarians acknowledge that, that means that this leg of our "three legged stool" and the four leg of our actual four legged one is pretty darned wobbly.  And it also would mean that the entire issue of "getting the Federal government" off our backs is moot now, as Trump has cut regulations considerably and, at the same time, while purely coincidentally the price has risen and a new boom, or maybe a boomlet, is on.  I.e., you can't campaign on driving the Germans out of France if they've surrendered already.  That political ship has sailed.

But in sailing, we should take some caution, and some hope.  In terms of hope, this boom, at least right now, doesn't look like it will get overheated.  That's always a huge problem in all sorts of ways.  But there's real hope that it might not. Right now, the price of oil doesn't appear to be drastically inflating.  Most of the producers of oil around the globe have real incentives not to allow that to occur.  And as we've noted here in the past, and as The Economist does in its article, technological advances may and societal changes have loosened the world's dependence on oil, even in formerly car crazy America.  Added to that, technological changes in the oilfield itself will mean that the return of oil will not mean the return of all the jobs that went with it.  The petroleum industry was relying on older rigs in the last boom.  So much so that  men who had worked overseas were often shocked by the antiquity of the equipment in the US.  That was changing, and as rigs come back on line  it will the the newer ones in increasing numbers, with the old ones being increasingly a thing of the past.