Welcome To The NEW Era Of Cheap Oil

Friday, November 14, 2014
By Paul Martin

Matthew DeBord
Nov. 14, 2014

The world runs on oil. That goes without saying.

And for much of the 20th century, the world ran on cheap oil.

In the early 21st century, however, that briefly changed.

When I moved to Los Angeles from New York in 2004, I could find gas for about $1.25 a gallon. The joke at the time was that bottled water was more expensive.

By 2009, the price had spiked to over $4. The highly profitable, environmentally unfriendly, gas-guzzling big truck and SUV market was completely obliterated for the Detroit carmakers — at the worst possible time.

General Motors and Chrysler went bankrupt. Ford’s stock fell to less than $2 a share.

Dark days.

Back, then, you heard a lot about “Peak Oil” — the theory that all the easy-to-get crude had already been found than that global production had “peaked” and was destined to begin a slide to some future point when gas would be $8-10 a gallon. Or more. Or much more.

Hybrid cars became thick on the roadways. GM started to take small cars seriously for the first time ever. Electric-car startups sprang to life.

Some of the more apocalyptic-minded folks began to talk about living in darkness and oil at $200, $300 a barrel.


But then the North American shale boom kicked into high gear. Fracking, combined with an influx of more fuel efficient car engines, simultaneously increased oil supply and depressed demand. Demand in the developing world kept the whole thing afloat, price-wise.

Now we have a total reversal: with oil well below $100 a barrel and growth slackening in developing markets, there’s talk of a global oil glut, of fracking enterprises going out of business because they can’t manage the economics, and of the U.S. becoming an exporter of oil.

The oil market has entered a new era, the experts are saying.

Cheap oil is back.

The International Energy Agency, which typically refrains from predicting oil prices, said in its monthly report that prices could fall further in 2015 after declining to their lowest levels since 2010: below $80 per barrel .

“While there has been some speculation that the high cost of unconventional oil production might set a new equilibrium for Brent prices in the $80 to $90 range, supply/demand balances suggest that the price rout has yet to run its course,” the IEA said.

That’s right: it isn’t Peak Oil — it’s a price rout!

The Rest…HERE

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