Tuesday, March 17, 2015

Piqued by Oil

The price of petroleum's slacking
With all of that pumping and fracking
Maintaining supply
At a level so high,
While demand, at the same time, is lacking. 

One would think, from the low price of crude,
That the future has been misconstrued,
But there's finite supply
In the ground, which is why
When it's emptied, it can't be renewed.

The price of oil continues to fall as, in the face of weak demand, producers from the Arabian peninsula to the tar sands of North Dakota keep pumping it out.   Like the protagonists in the famous Prisoners' Dilemma, exploration & production companies know that they would collectively benefit by slowing the pace of production, but individually they are motivated to cover as much of their costs as possible. 

In the short run, this development benefits consumers around the world, especially where the cost of driving is a major factor. At the same time, the oil exploration & production companies and their lenders are reeling from prices far below those they assumed when budgeting for the costs of extraction. 

In such times it is helpful to take the long view, which is that we are headed toward an eventual fall from the "net energy cliff," in the words of oil analyst Chris Nelder. This is the point at which it takes so much energy to extract the petroleum that it's no longer worth it. Notwithstanding today's bargain prices, that point may be closer than you think. 


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