Chess image via shutterstock. Reproduced at Resilience.org with permission.
Crude prices have been tumbling lately.
Brent crude, the global barometer, fell below $90/ bbl while WTI has tumbled lower to about $85/bbl. Pundits who extol conventional wisdom have been in a froth. As giddiness about US shale production emerged over the past few years, these pundits proclaimed that the shale revolution would make the world awash in oil but prices would not come down due to geopolitical events. This is a typically narcissistic view. They recently began boasting that the U.S. had now passed Saudi Arabia and Russia to become the world’s largest producer. What they neglected to brag about are the underlying fundamentals of this shale revolution: the junk debt, the deteriorating financials, the rapid depletion of wells and the difficulty of raising capital as large sophisticated investors quietly exit the back door. But perhaps most damning is the comparison of costs with Saudi and Russian projects. This is truly the Achilles heel of US tight oil. An aspect which typical conventional wisdom pundits in the US rarely address. And this has more to do with the decline in crude prices than they care to admit.