Economy, Regs, & Taxes

Low Oil Prices Have a Downside

Arnold Ahlert · Jan. 21, 2016

There’s been a serious “war” going on that most Americans are only vaguely aware of, mostly because the Obama administration’s media minions would never characterize it as such, and likely because the president and his like-minded environmentalist radicals are not exactly disenchanted with either the short-term or long-term implications of it. The current crash in oil prices is no accident, and while Americans are currently enjoying the cheap gasoline, they need to pay attention to the underlying causes.

As columnist Jonathon M. Trugman explained last January, Saudi Arabia has been determined to wage all-out war against America’s shale and energy exploration industry. “While oil inventories are already sky-high, and US exploration and production is at a 25-year high, why would our ‘friends’ the Saudis announce this week that they will raise the price of oil for Asia and other buyers but cut the price for oil it sells here in America?” he wrote. “It’s simple — they are trying to break the backs of the American energy production companies.”

Why? Because American innovators and risk takers who have made this nation the envy of the world have produced a revolution in the oil business, cutting into Saudi Arabia’s market share — and they’re scared.

They ought to be, along with their equally pernicious allies that comprise the Organization of Petroleum Exporting Countries, better known as OPEC. That organization was founded in Baghdad in 1960 by Saudi Arabia and four other American “friends,” as in the Islamic Republic of Iran, Iraq, Kuwait and Venezuela. Since then they have added Qatar (1961), Indonesia (1962), Libya (1962), the United Arab Emirates (1967), Algeria (1969), Nigeria (1971), Ecuador (1973), Gabon (1975) and Angola (2007). Gabon has since terminated its membership leaving OPEC with 13 nations. Bluntly speaking, they are a cartel that has never shied away from holding oil-importing nations hostage to periodic outbreaks of unconscionable price-gouging and, as many Americans remember, an outright oil embargo against our nation in 1973, in retaliation for our support of Israel.

Fast forward to last June, when we learned OPEC has been over-producing oil to drive American shale oil producers out of business. That’s because their share of the global oil market has shrunk from 60% of the world’s output to 40%, due to booming U.S. production. That boom has been so spectacular that the International Energy Agency predicted America would become the largest oil producer in the world by 2015 — five years earlier than originally believed. It happened even faster than that: Last June was also the month British Petroleum Plc’s Statistical Review of World Energy revealed the United States had surpassed Saudi Arabia — in 2014.

The headline of an article in Monday’s Telegraph spelled out OPEC’s determination to maintain its economic war footing: “Oil price crash: rout reaches $27 as Opec warns US shale will be forced to relent.” OPEC is hoping “persistently low prices would finally begin to bite for rival producers in 2016, forcing the US and Canada to cut back on production this year.”

In the short-term, low oil prices are great for American consumers and an Obama administration more than willing to take credit for something it not only had nothing to do with, but has actively worked against for years. As economist Stephen Moore so aptly noted, right after Obama bragged in his State of the Union speech about the job creation and cheap gas American companies had produced, he did a complete 180, warning Americans, “I’m going to push to change the way we manage our oil and coal resources, so that they better reflect the costs they impose on taxpayers and our planet.”

In fact the EPA has already issued three pernicious regulations designed to shut down domestic fossil fuel production. Rules that Harold Hamm of Continental Resources, a major driller in North Dakota, stated are “killing us … at a time when oil prices are low, and margins are already thin.”

Sound familiar? Moore thinks so. “Obama seems to be doing exactly what the Saudi oil sheiks are trying to do: shutting down fracking in America,” he writes. It’s far worse than that: Iran will be re-entering the oil market because economic sanctions against the world’s foremost state sponsor of terror have been lifted. Again, thanks to Obama.

And so far, American oil producers are taking it on the chin. “Survey the damage so far: More than 100,000 jobs are gone, most of them last year,” Wall Street Journal columnist Mark P. Mills reveals. “The number of shale rigs in service has collapsed by 60%. Banks are worried about their oil loans. Shale states are readjusting budgets for shortfalls. About $200 billion of oil and gas assets are up for sale world-wide.” He further notes that in 2015, American shale oil companies saw two dozen defaults, and 15 bankruptcy filings. “Standard & Poor’s puts junk ratings on three-fourths of the oil and gas producers it monitors,” he adds.

In other words, in the short-term, what’s good for a lot of Americans isn’t good at all for many others. What about the long term? If OPEC and the Saudis are successful, it stands to reason Americans will once again be more dependent on foreign oil than they are right now. Foreign oil provided by nations that simply hate us — when a majority of them aren’t busy fomenting or abetting the expansion of Islamic terror.

With Obama closing federal lands to production and regulating (and threatening to further regulate) oil producers, they’re stuck between the proverbial rock and a hard place.

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