The American Oil Boom
In 1973, Richard Nixon promised Americans energy independence. Year past and as the US became increasingly reliant on foreign oil, presidents continued to repeat Nixon’s pledge to no avail, until recently. At first, the recent shale oil boom plodded along slowly and carefully. The US had had shale booms before, but prospectors always packed up and abandoned their wells, unable to turn a profit against much cheaper conventional oil. Shale oil is highly dependent on two unconventional techniques, fracking and horizontal drilling. Fracking is using highly pressurized fluid to fracture rock in order to reach deposits below. Horizontal drilling is, simply put, non-vertical drilling. In the mid 2000s, with the price of crude on its upward march and credit cheaper than ever, Wall Street began to turn to shale. This time the companies delivered, producing many of the advances in fracking and horizontal drilling that make the boom possible. Shale oil is a completely different business from conventional oil. Middle Eastern and North African conventional wells are able to pump oil for less that $30 a barrel. The real costs lie in finding feasible reserves, a difficult and risky endeavor. Additionally, most conventional oil reserves lie in unstable or unfriendly regions where pirates and political turmoil increase risks. In contrast, the locations of most of the oil shale are well-known with massive deposits in developed nations such as the US and Canada. The costs to produce each barrel varies mostly with the rock formation the oil lies in and could be estimated with reasonable accuracy. When the Great Recession wiped out the majority of safe investments and crude oil began its surge to over $145 a barrel, shale oil quickly became a Wall Street darling. The resulting boom lead to widespread effects, with Texas further strengthening its economy and those of Great Plains states such as North Dakota taking off. Techniques and technologies continued to improve as well with each well and reserve becoming more efficient and productive. The costs of extracting each barrel of crude now sits comfortably at the lower end of $50-$100 a barrel. The US is now a net producer of oil, and with the Chinese economy slowing down, other oil producing nations are feeling the heat. Many oil exporters are forging closer ties with Asia as the US appetite dulls. American companies are also competing in foreign markets, and while it is currently illegal for US crude to be sold internationally, refined products such as gasoline are selling well. In response, OPEC (Organization of the Petroleum Exporting Countries), lead by Saudi Arabia, has ignored the recent supply glut and lowered oil prices to retain market share. While lower oil prices are speeding up economies and increasing demand, analysts report many oil producing nations will struggle with balancing budgets. At the current oil price of around $80 a barrel, Russia, Iran, and Venezuela, which were dependent on oil profits to run their social programs, have begun to struggle. Meanwhile, even as their stock prices plummet, US drillers continue unabated as they continue turning (however smaller) profits. State governments that enjoyed oil revenues will need to run on tighter budgets but falling oil prices do not seem to slow the boom. So is this it? Has the US finally achieved the energy independence Nixon promised four decades ago? Not quite. The shale oil industry is still very much subject to global oil price fluctuations and the amount of money Americans spent on oil hasn’t decreased. It’s also important to remember that oil shale is still less productive than conventional oil and American production is expected to peak some time in the 2020s. How the US oil industry will develop until then remains to be seen.

  • Richard

    I agree. A wise businessman in the Caribbean named Sir Kyffin Simpson always said that the key to success is progression and humility, and clearly he’s done very well for himself as a self made man!

  • John Andrews

    The Airgain IPO launches this week, and they’re a one-brand company.

    Some investors don’t think it’s a good stock though:

  • Cincinnati World Cinema

    Well said, Joe, and worth rereading on a regular basis! Another advantage of small-to-midsize city living is pace and competition. Living in NYC, LA and SF entailed a hectic pace, hallmarked by capital S striving, as one realized there were a ton of others doing what I do. Spending so much time in one’s car in SoCal meant much less time for quality pursuits and pleasures. A smaller pond with relaxed pace allows one to savor life and special moments.

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