Oil and the economy

The Enron loophole as part of Commodities Modernization Act signed into law by Bill Clinton was the
start of putting this all in motion. A very damaging piece of legislation.

 

The break even price for a new well is already lower in many areas, and it's going down:

The break-even oil price — the price needed to drill a new well — is $85 a barrel for Divide County, according to the state; for Williams County just to the south, it’s only $37. The difference is due in part to geology.

http://www.dispatch.com/content/sto...ge-boom-fades-in-some-north-dakota-towns.html

For Williams County, the second-largest oil producing area in the state, the North Dakota Department of Mineral Resources sees a breakeven point of $37 per barrel. For the state's four-largest oil-producing counties, $42 per barrel was the highest breakeven point.

http://www.reuters.com/article/2014/10/15/energy-northdakota-breakeven-idUSL2N0SA26L20141015

The Saudi's are taking direct aim at our Bakken oil fields, and other new areas of production. They've upped their output in an effort to break this exploration. But, they likely waited too long.

 

As for raising gas taxes, the idea is insane.

The recent gains in the economy are largely due to falling gas prices. They have put more money in people's pockets -- which they are spending -- and have given people confidence, which is crucial for the economy.

The dramatic drop in the price at the pump is giving a big boost to the U.S. economy. It's akin to a tax cut or stimulus program, economists say.

Every penny that gas prices decline puts about a billion dollars into Americans' pockets, according to Stephen Stanley, Chief Economist of Amherst Pierpont.

Gas prices were 62 cents higher this time last year, so the U.S. is basically getting a $62 billion stimulus injection. To put it another way, each household is saving roughly $500. That's money people can use to buy other things or to save.

http://money.cnn.com/2014/12/10/investing/oil-prices-akin-to-tax-cut/

Take a look at auto sales, they're at a five year high, with demand for larger, more expensive cars/trucks/SUVs leading the way:

Sales of cars surged in December, and analysts believe that the year's total will exceed 17 million, making it the fifth straight year of growth for the industry.

Cheap gas prices helped make that happen, as sales of trucks, SUVs and luxury vehicles rose rapidly. Jeep's sales, for instance, were up 40 percent on increased consumer demand for crossover SUVs.

http://www.npr.org/2015/01/05/37520...december-capping-a-good-year-for-the-industry

If we had any balls, we would cut the taxes on gasoline and jet fuel. If lower oil prices are akin to a tax cut, and they drive economic activity, why not enact an actual tax cut?

Gas (and jet fuel) taxes are incredibly restrictive. They hold back economic activity, and add costs to goods at every step as they move through the supply chain.

 

DCJ, what are your thoughts on the Keystone XL pipeline?

 

I agree that raising gas taxes is a dumb idea. The drop in oil prices is proving to be a strong stimulus and one of the few that effectively reaches low- and middle-income people. The last things we need are additional regressive taxes. In fact, we should be finding more ways to stimulate the bottom of the economy where people are still struggling. I am, however, concerned that this could create the impression we don't need to wean ourselves from fossil fuels.

 

If the price of fossil fuels is cheap, and supplies are plentiful, then why do we need to wean ourselves off of them?

I also find it hysterical that folks are worried about the problems that cheap oil will cause in places like Russia.

Perhaps we should worry most, though, that cheap oil will cause upheavals, even wars. Russia, Iran, Iraq, Nigeria and Venezuela are especially vulnerable to cheap oil. Because governments sometimes counter such forces by either aggressive action against neighbors or their own people, the real price of $2 gasoline may include bloodshed.

Iran and Algeria, for example need oil at about $130 a barrel to maintain their economies, the International Monetary Fund (IMF) estimates. “Even if oil prices remain at their peak 2014 levels, fiscal balances will deteriorate if policies do not change” in a variety of Middle East oil-exporting countries, it warned in October.

Saudi Arabia needs $100 oil, the IMF says, to keep its economy humming.

http://america.aljazeera.com/opinions/2014/12/gas-prices-energy.html

Expensive oil has pumped billions into the pockets of the leaders of some of the worst regimes on the planet. But, now we're supposed to worry about them not receiving so much money?

 

It's also insane because, as a financial columnist pointed out over the weekend, about a quarter of the funds that are supposed to go to build and repair roads and bridges are going to other pet projects. I know, I know — government favors — we're all shocked at the prospect.

 

Because the recent oil glut, like the one we had in the '80s, is unsustainable in the long run and fossil fuels are terrible for the environment.

 

Obviously high oil prices spur more investments in alternative energy sources. But, there's a lot of investment and research going on right now in solar, wind, and battery technology. Low oil prices aren't going to end that.

But, many of these technologies aren't ready for prime time yet.

In the mean time, I say give us cheap oil.

 

And conversely lower oil prices slow down investment in alternative energy sources. You've got your wish already. We do have cheap oil. Enjoy it while it lasts.

 

When are we going to find our Leviathan?

http://www.ft.com/cms/s/0/40474f4a-8aaf-11e4-8e24-00144feabdc0.html#axzz3Ocbfr3i9

 

Many of the experts said that we would never see cheap oil again because of limited supply. Now we see what really happened
was that the price was manipulated in the commodities market. Once the spotlight of congress investigation was turned upon it, firms backed up
and the price has come down again. I also believe that more money has moved towards equity market.