This economics stuff can melt your brain. So we’ve created this handy guide to help you understand why it now costs a lot less to fill up your car, boat, autogyro, plane, or spruce moose. We’ve designed this to be read by an eight-year-old. But please, they shouldn’t read this due to the unlikely event the below content is laced with profanity and lunacy unfit for anybody beneath the age of forty.
My Guests assisted in the creation of this high-genius-data, so make sure you enjoy all their hard work. If you don’t, bad things will happen to me. So let’s dive in, friends:
A single barrel of black goo used to cost much more than $100. As of this morning, it’s below $68.
Why’s oil so much cheaper?
Fracking has changed the human race. As of this year, the world’s biggest oil producer is Uncle Sam. This has flooded the market with a shit ton of oil. More oil means lower prices.
Usually, the OPEC oil barons respond to low oil prices by cutting production. This would drive prices back up so oil sheiks can go back to popping wheelies in the desert in their Toyota 4Runners.
However, this time OPEC decided to keep production output the same. Once the planet saw this happen, the market tanked the price of oil.
Why did OPEC do this?
The sheiks have realized how much fracking has fucked them. This is an existential threat to their 4Runner way of life. They’ve decided they need to keep the barrel price low enough to bankrupt the fucking frackers.
American oil companies don’t publish these figures, but it’s estimated that they need the price of oil to remain above $60-$70 a barrel. Anything lower than that, and oil fracking becomes unprofitable.
So the sheiks are trying to put fracking out of business by keeping the market flooded with oil, thus protecting their market share, and trying to bankrupt the fucking frackers.
Is the going to work?
OPEC’s fucked. So is Russia. [giggles]
You’re so hateful.
Let’s say OPEC tried to keep prices low for five years in order to bankrupt frackers. By that point, most of OPEC would go bankrupt. Russia too.
But they have so many 4Runners already?
Iran, Bahrain, Russia, Venezuela, Nigeria: All these countries structured their national budgets based on an oil selling price usually north of $100 a barrel. If OPEC tried to keep prices around $70 a barrel for five years, trust me, Iran’s going bankrupt before your humble Ohio fracking company.
So what will they do?
OPEC’s got a problem. Saudi Arabia is OPEC’s big daddy and can afford to keep prices low for a lot longer than the others. So the Saudi’s are going to resist any production cuts even when the rest of OPEC wants to do it.
Does that mean OPEC’s fucked?
You bet. For you see, the Saudis are devious assholes. They don’t give a damn if Iran and Russia go bankrupt, they’d welcome it, and will hold firm to their demands.
Now most OPEC’s smaller nations are cheatyfaces anyways, but it’s going to get out of hand. Sooner or later, OPEC nations not Saudi Arabia are going to try and cut some production to drive the price back up. But it’s not going to work.
My head hurts.
The only countries on the planet that have the power to influence global oil prices with a massive production cut by themselves are Russia, America, and the Saudis. Everybody else is a relative bit player.
We’ve already stated why the Saudis won’t cut. America won’t cut because oil companies love fucking money. Russia can’t cut because Vlad [moron] needs oil at around $130 [$130!] a barrel to stay solvent. In other words, Vlad’s [idiot] going to need every rouble possible. So he can’t slash production when he’s got to sell, sell, sell.
Once the smaller OPEC nations realize this, things are going to fray. The oil market’s going to get a very chaotic.
So does that mean the price stays low?
Indeed. Eventually anybody with oil is going to realize that production cuts can’t bring the price back up. Once this realization occurs, it’ll become a war to sell as much black shit as possible in order to cash-in before their petro-governments go bankrupt.
But since we’re still having babies, don’t we always need more oil?
Yes, but not for at least five years. Europe is in a deep recession. China’s economy might go off a cliff. America is still led by idiots. For quite a while, Earth’s going to need more oil, but our demand will rise only very, very slowly.
As long as demand rises slowly, production can keep up, and prices will stay low. It’ll take at least five to ten years for Europe to fix itself (if ever) and for China to get over this hump. Until then, we won’t see demand outstrip production.
So who loses?
Dictator-narco-petro-goons who’ve built their narcissistic empires on fossil-fueled-card-houses. Plus the people who live in those countries. That is, unless they overthrow their overlord bosses and fight for freedom.
Most of humanity who requires oil to live, play, work, etc. With lower oil prices, they can spend more money on clothes, food, beer, and other key necessities of life.
Plus countries whose economies are tied to oil to make things, not just to sell oil for profit. Think America, China, India, Europe, etc.
When will we know if you’re right?
If by July or August we still have very low prices, you’ll know it’ll play out roughly as we predict.
We’re idiots. So we’ll just have to wait and see. Either way, it’ll be fun to watch.
Cheers, friends! [cracks motor oil can; guzzles contents; goes cross-eyed; realizes it’s not a beer can; passes out vomiting]
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