Y’all remember not that long ago when there was bragging going on about how the US was transforming itself into an oil exporter (and therefore self-sufficient so we would never again feel the effects of an oil embargo like OPEC did in October 1973)? Well, who told you that “fact”? What if I told you it was “Fake News”?
I guess it is one thing to get shale oil refined to the degree where the US would be secure in its oil production, but to do so in a way that was financially irresponsible is another. As Bill Bonner pointed out in this article, the recent peak of domestic oil production at the right was only one piece of the picture:
… The shale oil boom was even credited with having scuttled the oil market, which dropped from a high of around $130 a barrel in mid-2008 to under $30 in late 2016, thanks to so much new supply.
But guess what? The whole boom was fake. It didn’t add to wealth; it subtracted from it. Accumulated losses over the last five years tote to more than $200 billion, with $36 billion lost in the Bakken shale fields in North Dakota alone…
Not fake in that there was not oil produced, but that it was produced irresponsibly, but not just poor management or poor corporate decision-making but it was the Federal Reserve’s twisting of economic reality that fed this huge financial mistake:
Had credit been priced properly, it never would have happened. From The New York Times:
“The 60 biggest exploration and production firms are not generating enough cash from their operations to cover their operating and capital expenses. In aggregate, from mid-2012 to mid-2017, they had negative free cash flow of $9 billion per quarter.
While this effect that the FED has on corporations across this land with cheap credit (ZIRP) is not limited to the shale oil industry, Bill goes on to list a few more entities that will no longer be sustainable in their current form:
Of course, the same thing could be said of the trillion-dollar companies, Amazon and Apple, whose market capitalizations are largely the result of cheap credit.
And it could be said of the whole tech sector – with its outrageous inputs of capital into companies that have never made a dime.
Or it could be said of emerging markets, which have managed to suck up the loose change spilling out of the financial industry. They promised slightly higher yields, and now, they owe far more than they can pay…
.. “When the wind blows hard enough,” say the old-timers, “even turkeys fly.”
The wind never blew as hard as it did from 2009 to 2018. And overhead now are so many plump, money-losing birds that we suggest you take cover.
From the taxpayer bailouts ten years ago to today, we have quite a “bubble-rich” environment. Printing even more money is probably the only option left for the FED, we will see how far down the road they are able to kick this can. Rough sledding ahead .. prepare well and hang on!
-SF1