First oil
“Nowadays, people know the price of everything and the value of nothing.”—Oscar Wilde, The Picture of Dorian Gray.
All of us in the oil and gas industry, and commodities markets, are very much focused on the price of crude oil. From $105/bbl in February 2014, the price for West Texas Intermediate (WTI) has descended by more than half and now appears to be fluctuating between $45 and $50/bbl in recent weeks. While the rig counts have dropped to suggest a slowdown in industry activity, it will take some time for production declines to narrow the 1.5-MMbopd gap between supply and demand. As the gap narrows, we’re likely to see a corresponding rise in crude oil prices.
Within variations due to short-term supply-demand constraints, crude oil prices have remained within a bandwidth from $30/bbl to $150/bbl. What does this tell us about the value of crude oil in the overall economic universe? One of my personal economic indicators is the relative size of a publication catering to an industry segment. As an example, the March 2015 issue of World Oil magazine consisted of 98 total pages. This page count can be matched against 608 pages for Vogue, a fashion magazine. Whereas World Oil caters to technologies for increasing oil and gas production, Vogue focuses on the latest fashions in clothing, hair care, makeup and designer handbags. Setting aside differences between business-to-business vs. consumer magazines, we could surmise that there could be at least six times greater societal interest in fashion than oil and gas technologies.
While this may be of small comfort to the publishers of oil and gas magazines, the relative lack of value for oil and gas, as opposed to designer handbags, is a great testament to the progress of our civilization. If we can go back to prehistoric times, nomadic bands of our ancestors were totally focused on basic survival, and the hunting and gathering of food. As human ingenuity led to agricultural settlements and the ability to grow surplus food, some segments of the population had the time and wherewithal to pay more attention to their personal appearance, and to develop unique cultures through fine arts, music and literature.
At this time in the 21st century, at least some segments of our Western and Eastern civilizations can enjoy a 40-hr work week and pursue a wide variety of cultural and leisure activities. The value we attach to entertainment through movies, musical performances and sports is a testament to the growing importance of leisure in our society. Meanwhile, the task of producing energy for the planet has been relegated to a relatively small niche industry, which is able to supply more than 92 MMbopd.
Our society’s ability to easily fulfill the basic needs of food and shelter makes way for the tremendous value garnered by the fashion industry. A small coterie of designers can create luxury goods that are of immense psychological value to a growing segment of our population.
Most industry experts agree that the current crude oil demand deficit is a short-term phenomenon. As economic progress lifts more people in developing countries, such as China and India, into the consuming class, there will be significant growth in energy demand. In the coming decades, there will be an increasing need for more efficient oil and gas technologies. As a result, our oil and gas industry will continue to provide cheap energy, such that more people can consume basic necessities, as well as enjoy the luxuries of our civilization. 
- Oil and gas in the Capitals (February 2024)
- Prices and governmental policies combine to stymie Canadian upstream growth (February 2024)
- U.S. producing gas wells increase despite low prices (February 2024)
- U.S. drilling: More of the same expected (February 2024)
- U.S. oil and natural gas production hits record highs (February 2024)
- Mixed outlook for activity on the UK Continental Shelf (December 2023)
