The U.S. Economy & The Price of Oil: Could The Fix Be In?

     Today, I'm going to give a disclaimer, right off the bat.  I am no authority on economics, world politics, or how commodities are manipulated.  But I have pretty strong instincts; and something "just ain't right", as they say, about falling gas prices and the price of a barrel of crude oil.

     What I'm writing will come nowhere close to explaining all the manipulation going on among the world players.  I know I'm just scratching the surface, but perhaps you have been asking the same questions I have.  What's really going on, and what is the endgame in all this mad maneuvering?

     First of all, are you as quizzical as I am about how and why the price of a gallon of regular gasoline has dropped by 23 cents in the last month, and nearly one dollar (90 cents) since this time last year (according to GasBuddy.com)?  And why have the voices that just a few years ago were shouting, "Drill, Baby, Drill", are now quietly looking at slowing down production.   

     From what I can understand, part of the reason is pure economics.  With the success of the Bakken  reserves in North Dakota, and the Permian Basin and Eagle Ford shale fields in Texas, there is an oversupply of natural gas.  It's the old axiom we learned in Economics 101:  Prices are determined by supply and demand; and right now, our supply is growing faster than the demand for gasoline.  U.S. car manufacturers are building more fuel-efficient cars, which creates less demand for gas, which directly effects the bottom line of oil companies. 

     Although foreign markets, like China and India, are developing a market for increased supplies of gas and oil, there is not a huge desire for exporting our oil.  If you will remember, just a few short years ago, we were all screaming about the $4/gallon prices and calling for more domestic production; we all wanted energy independence.  So the American people are happy with the low gas prices, but the American oil companies are starting to fidget.  In fact, here in Texas, just two-three months ago, expectations were that the exploration activity would continue for another 15-20 years.  Just this last week, there are local rumors that production could start shutting down, as the companies drastically cut their risks.  They just can't afford to spend the huge outlays for speculative drilling, if the supply for their product is diminishing.  In other words, their businesses are becoming less profitable.  It's really this simple -- when you see your profit start to decline, you cut back on your expenditures.  

     I won't even begin to try to describe how this could potentially affect the banking industry who has provided extravagant loans to these oil companies.  What do you think happens to a bank's balance sheet when oil company executives decide that the costs of further exploration outweigh the risk or profits, and bankruptcy is the most prudent solution?  Even selling the loan for pennies on the dollar means huge losses to major financial institutions.  Think that might be the tipping point for our economy?

     But what else is causing what seems to be a drastic and sudden drop in oil prices?  This gets a little more complicated and hard for me to understand, but it's important for us to consider.  The Organization of Petroleum Exporting Countries (OPEC) met this past week, and decided to keep the price of a barrel of oil at just over $70/barrel.  In case, you're like me, I didn't have a clear understanding of exactly what OPEC was or how they operated.

     Here is the "official" explanation:  The purpose of OPEC for members is to "coordinate and unify the petroleum policies of its Member Countries and ensure the stabilization of oil markets in order to secure an efficient, economic and regular supply of petroleum to consumers, a steady income to producers and a fair return on capital for those investing in the petroleum industry."  Furthermore, OPEC member countries monitor the market and decide collectively to raise or lower oil production in order to maintain stable prices and supply.

     OK, now the picture is getting clearer ... wouldn't it be important to know who the major players are?  Because it sure seems to me that certain members could collude with other members to influence the market and economies of competing members.  And there is always the question of who is lurking in the background, influencing the decision-making.  Currently, OPEC members are primarily from the oil-rich Middle East, with Iran, Iraq, and Saudi Arabia being among the founding members.  

     From a purely political perspective, what better way for countries. who are antagonistic against the U.S., to harm our economy than to start effecting the most successful industry in this country, and start driving down profits?  Because make no mistake, even though the American people may not recognize it, foreign governments and economists are well aware that the U.S. domestic oil industry is propping up our economy.  Just let us experience another oil bust like we did in the 1980's, and the mask will come off.

     All the media propaganda, false GDP growth reports, bailouts, and failed banking schemes will no longer be able to hide the truth -- the American economy is nosediving, and we may not have the oil industry to continue the masquerade.  

     And who would love to see that scenario take place more than Russia?  Through our sanctions, we have attempted to compromise their economy.  So, through their alliance with oil-rich Iran, this would be an opportunity to reciprocate.  What better way to ensure their leadership in the world's oil supply, while striking a blow to our own status, and more importantly, our economy?

     I waived my rights at the beginning of this post, that I am no expert on the petroleum industry.  And I know these are all fractured thoughts and ideas, but when my spider senses are tingling like they are now, I have to give voice to what my instincts are telling me.  Things are not as they seem, and something tells me that the puppet masters are  working their strings and the game is rigged.  Is our house of cards about to come tumbling down?  

     If you have a more educated insight, I would welcome your comments.  It's a good time to engage with all of us who just want to know the truth.  After all, we're in this together.  So, my question is this:  Is what I'm sensing and seeing, really happening?  What's your opinion?

Psalm 2:1    "Why do the nations assemble with commotion [uproar and confusion of voices], and why do the people imagine (meditate upon and devise) an empty scheme?"