Drop in oil price affects political scene

link Robert Arrowsmith

Publisher

I’m sure everyone has seen it. The price of gas is declining and frankly declining quickly. Prices are down 20 percent nationally since June. Some forecasters are predicting gas prices will get down to the $2.75 range before winter bumps these prices back up.

For most of our generations’ lives, when we went to war, or were even involved in a military exercise of some sort, we all had to hold our breaths to see where prices were going to go. Yet here we are today having started military action in Syria and in Iraq, and prices continue to fall.

So why do we have a couple of extra bucks in our pocket? Who do we have to thank? Shale oil development or fracking is who, of course.

This year, thanks to shale oil development, the United States is No. 1 for the first time in decades in oil production, having passed Saudi Arabia. By pumping an extra million barrels of oil per day on average for each of the past three years into the equation, combined with still-sluggish economic recovery for much of the world, and add no truly crippling storms that would impact oil production in this country the past couple of years — it has created a surplus on the market.

While it has been nice to see a few extra bucks in our pockets, the drop in oil prices has created several other interesting political scenarios.

Iran needs for oil to be at $140 per barrel to break even. Do you think this might be one of the reasons they have been willing to talk recently?

Venezuela? When has it been in the news recently? It needs oil to be at $162 per barrel to break even. It has been rather quiet since Hugo Chavez died last year.

Even Russia needs oil at $100 per barrel to break even, or else it would have to tap the bond market to pay off debt. What kind of risk market do you think Russia is in right now with their actions in the Ukraine?

Historically, falling oil prices has been good for developed countries such as the United States, and has been bad for developing countries as they have relied on oil as one of their primary sources for development. Higher oil prices have historically encouraged new development strategies. The most recent example of lower prices and the economic impact in this country can be seen with the 1990s.

Oil prices per barrel have been running in the $80’s. Fracking profit margin historically on average has started in the $50s per barrel range.

By the way, did you know New Mexico is now No. 6 in oil production in the United States? Places like Artesia and Hobbs are really taking off.

As they said when I was in North Dakota during the start of this oil boom … drill, baby, drill.

Robert Arrowsmith is publisher of Clovis Media Inc. Contact him at:

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