Friday, November 28, 2014

Oil

When oil cartel OPEC yesterday decided not to limit production in order to stop the slide in the price of oil, oil prices immediately slid further and have kept dropping since. But what in better days would have been joyous news for consumers and American businesses instead portends ominous consequences.

Citing data from the mainstream media, the World Socialist Web Site lays out the case: OPEC's decision means that OPEC, under the direction of Saudi Arabia, has essentially declared war on the US oil industry. US shale oil production -- fracking and tar sands -- depends on high oil prices to be profitable, so as oil prices decline, US production will decline.

As one consultant told Reuters. “In other words, it should be in the interests of OPEC to live with lower prices for a little while in order to slow down development projects in the United States.” Speaking more bluntly, Russian oil tycoon Leonid Fedun said the OPEC policy would "ensure a crash" in the US shale industry.

Whether crash or slowdown, sliding oil prices will not just affect jobs in oil intensive states like New Mexico but could trigger another global economic crises.  Considering how much cash has to spent before any oil is sold, on exploration, drilling, then getting oil to where it can be sold, much of the US fracking boom has been financed, and much of that has been with junk bonds as all kinds of producers rushed to get in on the boom. This means the decline in US oil fields will lead to large defaults and potentially another banking and financial system crises.


 Note: As has been pointed out, none of this is good news for New Mexico.

Note: It's interesting that conservatives push the Keystone-XL pipeline by asserting it would mean lower gas prices for "the 'murican people." It might be more accurate to say that by delaying its approval the president has been trying to save the US oil industry from too-low prices.







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