How Much Pain?

The top article at Rigzone is a repost of a Reuters piece, As Oil Plummets, How Much Pain Still Looms for US Energy Firms:

With nearly a quarter of U.S. energy shares’ value wiped out by oil’s six-month slide, investors are wondering if the sector has taken enough punishment and whether it is time to pile back in ahead of earnings reports later this month.

In her latest post, Oil and the Economy – Where We Are Headed?, Gail Tverberg has qualified her claims of increased inefficiency from the post before:

The low oil prices we are seeing are a symptom of serious problems within the economy – what I have called “increased inefficiency” (really diminishing returns) leading to low wages. … While wages have been stagnating, the cost of oil extraction has been increasing by about ten percent a year …

That makes more sense to me, but I still think that speculation and profit-taking have been playing a role.

A few other financial sites have challenged the claim that Saudi production is the primary factor driving down oil prices, pointing out that the prices started dropping just as the Fed stopped propping up a cheap dollar by ending Qualitative Easing 3 in October 2014. Tverberg also points out that the Chinese government began to scale back their spending on infrastructure early in 2014.

Too bad the US government didn’t also invest in infrastructure. At least the Chinese have the infrastructure – all we have are wealthier plutocrats.


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