The zombie apocalypse in oil: Why it’s a bad sign for all of us
Meanwhile, consumers have rejoiced as cheap oil prices have led to cheap gasoline, diesel, heating oil and jet fuel. Both households and businesses are finally getting their revenge on the oil companies after a decade of high and rising prices.
But should those consumers be so sanguine? Can the low prices we are experiencing today be extrapolated far into the future? The conventional wisdom says yes. It claims that the American fracking boom of recent years has unleashed a flood of oil that will keep prices down for many years to come. Combine that with an undisciplined OPEC that pumps flat out and you get not a temporary dip in prices, but a new era of low-cost oil and oil products.
But the same facts can be interpreted as leading to serious future supply constraints and high prices, provided the world economy does not fall into a prolonged slump that would reduce oil demand.
Cheap financing fed the fracking boom. And, even though borrowed funds are still cheap, struggling oil companies are finding their bank lines of credit reduced and a bond market that is shunning their high-yield debt. With additional funds hard to raise, many independent companies are finding it difficult to drill new wells needed to make up for declining production from existing ones, around 40 per cent per year in the two largest tight oil formations–the Eagle-Ford in Texas and the Bakken in North Dakota–where fracking is the primary technology for extracting oil.
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