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The US has an oil industry that is completely unreasonable. The whole idea of US oil production is that the price needs to be high enough to support the costs o
by coliveira 7y ago
The US has an oil industry that is completely unreasonable. The whole idea of US oil production is that the price needs to be high enough to support the costs of shale extraction. But their own existence forces the prices down by oversupply. It is an economic time bomb.
- mschuster91 7y agoThe existence of the US oil industry is not unreasonable. The US needs their own oil supply for military security - without domestic production the US would be subject to Russian and OPEC extortion (which the Russians and OPEC are pointing out at the moment).
- deleted 7y ago[deleted]
- dragontamer 7y agoIts insurance against OPEC raising prices. Without the shale oil industry, OPEC will just raise prices. With the shale oil industry, OPEC lowers prices to try to wring them out of business. Gotta think big picture and geo-political issues. In isolation, its a negative (especially with such low prices right now). But in the great scheme of oil-independence from OPEC / other oil producing companies, there's a benefit.
- kevin_thibedeau 7y agoOPEC countries also pump themselves dry sooner while the patient sit on their expensive reserves.
- newyankee 7y agoHopefully in 5 years EVs will become the insurance against OPEC and the BP forecasts of yesteryears will never materialize
- coliveira 7y agoThere is no benefit when prices crash and the US has to bail out these companies. It would be much smarter to reduce dependence on oil with investments in clean energy, instead of making the economy dependent on that same polluting industry.
- dragontamer 7y ago> There is no benefit when prices crash Prices are crashing because OPEC wants to harm the shale oil industry. Look, we can either make oil or rely upon foreign oil. Those are the two choices (or some combination of the two). The more oil the US makes, the more we are harmed by low prices. The less oil the US makes, the more we are harmed by high prices. Obviously balance is the key, but notice that opponent (OPEC) is intelligent and has a large degree of choice in the matter. Whatever the US does, OPEC will adapt and push our weak point. And yes, I recognize that moving off of oil entirely is a 3rd, independent solution. But that can be done independently of our production of oil. For now, we're a grossly oil-consuming nation, so we have to make due with the present reality of our country.
- coliveira 7y ago> But that can be done independently of our production of oil. If you are an oil producer, and a large part of your economy depends on oil production, there is little incentive for cuts on oil usage. This is exactly the pattern we see in the modern US economy.
- bobthepanda 7y agoThis logic worked at least for a while, because traditionally the established oil giant countries (Russia, Saudi Arabia, Venezuela, etc.) used their oil to prop up massive social spending, and they needed some minimum oil price to balance their budgets. Saudi Arabia is looking at deficits that are a double-digit percentage of GDP. Russia's budget outlook is not looking hot either. We'll see how long they play chicken with their financial reserves, because those could disappear faster than they think.
- 0x8BADF00D 7y agoTheir financial reserves will disappear way faster if they keep it in dollars. Maybe not so much when they switch to gold. We'll see.
- coliveira 7y agoThey have built their reserves in Gold and other currencies, that's why they don't care too much about USD reserves. Interestingly, the concerted US effort to sanction the Russian economy has made it possible for them to reduce the USD dependencies.
- mywittyname 7y agoGold is very volatile though. Treasuries at least pay interest.
- bobthepanda 7y agoEven gold can disappear quickly if a run starts on your currency.
- dickjocke 7y agoDoes the US government subsidize them at all? I wish we would pivot faster to renewable energy, but in the meantime we should also ensure we are not reliant only on authoritarian states for energy.
- coliveira 7y agoYes, oil industry in the US is heavily subsidized. They pay less taxes than any other industry and receive free land and other government incentives for oil and gas exploration.
- perl4ever 7y agoThis is something "everybody knows", that it is "heavily subsidized" but I'm not aware of what rules and regulations are written to favor and apply only to the industry. Maybe you could summarize a bit?
- coliveira 7y agoThe easiest to spot is the favorable tax treatment. The oil industry has a sweet deal that slashes taxes on oil investment. The provisions are complex and written to facilitate big investments in this industry [1]. 1: https://www.energyfunders.com/blog/oil-investing-benefits/ https://www.energyfunders.com/blog/oil-investing-benefits/