Wow, you take a week off for Christmas and your site stats drop through the floor! Sheesh! Where did all my readers go?!?!
Well, back to the salt mines, as they say in the old country.
This week brings us more news from Bob Dudley, Group Chief Executive and director of BP – itself one of the largest oil companies in the world (sea-killing disasters notwithstanding). Dudley, no stranger to the vagaries of commodities pricing, states unequivocally that we have not yet seen the worst price declines in the price of our beloved Texas Tea. Worse yet, he says that the low price should remain firmly in place for the next two to three years.
“Two to three years!” The peanut gallery exclaims, “Why, that’s not a decade!!! Your headline lied… You’re a liar who LIES!”
As usual, the gallery is on top of the game… two years is less than a decade…
Unfortunately, however, the problem with low oil prices for the next two (or, pessimistically, three) years is the effect that price has on future investment in the industry. You see, as the CFO for the once-giant Texaco corporation stated (and this is not a direct quote), “if you are not investing in year 0, then you are not growing in years 8 and 9.” (This was, of course, from the book The Quest by Daniel Yergin… A follow-up to the Pullitzer Prize winning book The Prize. If you’re interested in petroleum’s impact on world events, you should read both immediately.) As we have seen in recent days and weeks, oil companies are unwilling to invest in production at the current price.
It follows, then, that these same companies will curtail their investing until the price substantially improves. If Mr. Dudley is correct, then, that means we will see a lack of investment in the fields of West Texas (as elsewhere) for the next two or three years…And, if the aforementioned CFO was also correct, that means that the regional economy is apt to experience the current malaise for the next 10-11 years, at a minimum.
Scary stuff indeed.
Postscript: By the way, I’ve seen a lot more yards filling up with equipment in the last few weeks. Additionally, the streets of Odessa and Midland have been filled with tow trucks hauling late-model vehicles. Either Detroit started making some pretty shoddy pickup trucks in the last few years, or there are a lot more repossessions occurring than one would expect based on the local news coverage of the downturn.