A Different View On Oil Prices

Sober Look presents a different take on the effect of lower oil prices on US oil production than I did in my post yesterday. They quote Scotiabank suggesting that the Bakken and Permian Basin fields are producing below break even based on current prices, while Eagle Ford is still in the black. They posit slowing drilling activity and tighter credit for independents if these prices hold. I don’t think it’s unreasonable to expect a bit of the froth to go out of the US E&P market, but I doubt that at current levels any effect is going to be other than on the margins.

Interestingly, Sober Look postulated that oil prices might get a temporary boost at least domestically if the government should choose to add to the Strategic Petroleum Reserve. Such a move would present a difficult choice for an administration committed to renewables and clearly hostile to fossil fuel production. On the one hand, lower oil prices and the consequent depressing effect on production would be welcome by its enviornmental base, while lower oil prices strain the economic arguments in favor of wind and solar. Oh, and lower oil prices certainly don’t do much to dampen the American love affair with SUVs and pickups. Overall, I doubt that any attempt to boost prices will be viewed as a viable political alternative.

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