Who Really Knows Anything About Oil Prices…

Arguably the most famous Oklahoman, Will Rogers said, “All I know is what I read in the newspaper.”

Isn’t that just about exactly what those of us whose livelihood revolves around the price of oil do? I have lived through at least five downturns and as many booms during a 47-year career as an independent oil and gas producer. And like most, I know in this situation, I wait anxiously for the daily prediction about the price of oil.

Articles like this one in oilprice.com opinion that Aramco’s true breakeven is really around $40 per bbl really hit the optimism button in our brains.

Well, honey, don’t pave the driveway just yet!

After all these years and literally thousands of opinion pieces, most reading more like facts, I have reached a conclusion. No one really knows what the price of oil will do.

There are simply too many variables to isolate to come to any fact-based conclusion. The closest I’ve come to “hanging my planning hat” on the price of oil is realizing that ultimately the market place (supply and demand) decides the price. We can realize factors that might influence supply and demand. But we simply cannot just know.

Now, no one ever writes this because it just wouldn’t sell. Certainty is what we all long for and never really achieve. The only true certainty is death and change – not taxes. Both are coming. We just never know when or how.

Take this excellent article from Oilprice.com as an example. The article asserts the conclusion that oil prices will never again go below $45 per bbl based on Aramco’s net profits, which do seem to lead to a breakeven point of around $40 per bbl. But there are more assumptions here than there are in predicting who will win the Super Bowl. The most notable prediction is that Saudis government programs will stay the same with a lower oil price. At some point, even the Saudis will “pull in their horns,” just like the rest of us have to do and cut spending. And who really knows of the potential for opening new reserves in Saudi? I don’t mean to be critical of this excellent website. In fact, I still read it almost every day. I just read it for information, not conclusions.

The speculation over climate change and the resulting measures are also an uncontrollable variable. We just don’t know how these concerns affect the price and use of fossil fuels. Just this past week a rail bill passed the House in the State of Washington that could lead to redirecting 150,000 bbls per day of Bakken crude. Measures just like this one all across the globe are designed to disincentivize the use of fossil fuels will have an impact on their cost and acceptability to the public. Over time if the fear of climate change leads to more actions like this the use of alternatives becomes more attractive. Just a few years ago alternative fuel sources made up less than 2% of our energy requirements.

“Renewable energy is the fastest growing energy source in the U.S., increasing 67% from 2000 – 2016,” according to the Center for Climate and Energy Solutions.

There is no question that the trend in Academia is to support positions that advance the narrative that fossil fuels are destroying our world. That may or may not be the reality, but the perception is a variable that is increasingly more in play.

But like the title of this writing says, “Who Really Knows Anything About Oil Prices?” (Let alone me.) So, the sky is not falling. But it’s definitely getting foggy.

About the Author

Mike Cantrell

OEPA President

Michael (Mike) Cantrell was born and raised in Oklahoma, where his family has strong ties to the oilfield. Mike is a founding member of OEPA and has served as OEPA’s president for two years.