[TR] Ruminations

[Randall]

> I 'love' that. In the '73 Arab Oil embargo, we were told of 
> an 'oil shortage' which forced the price of gas to double and 
> even triple in a matter of weeks. Overnight, the Arab 
> sheikdoms became billionaires. Here we are, forty years later 
> and, somehow, we have an oil GLUT! Now how can that be??

Until the 73 oil embargo, there were government controls on the wholesale price of gasoline.  Evidence suggests (to me) that the 73
shortage was engineered by the oil companies, in order to break the price controls.  Supposedly there were tanker trucks lined up
for miles outside the tank farms, because the tank farms were full!  As I recall, some industry exec even got quoted as saying we
could have all the gasoline we wanted, for $2/gallon.

The glut has many causes, but I'd say chief among them is that the oil companies have learned a LOT more since then on how to
squeeze more oil out of the ground (steam injection, oil shale, fracking, etc) plus how to squeeze more gasoline from a barrel of
crude.  High prices no doubt played a part in their investments in those technologies.

There's also the problem that it takes many years between going out to hunt for more oil; and actually producing fuel from that oil.
It's a big, complicated, expensive (and dangerous) business, especially for off-shore oil.  When prices go up, exploration goes way
up.  Then when all those new wells start producing, there is an over-supply and prices drop.  Eventually the wells get shut down
because they are too expensive to run (when compared to the glut prices) and the cycle repeats.

Back in the early 80's, I worked for a company that supplied custom computer navigation systems to the oil industry, among others.
When oil prices were up, we always got a bunch of orders, for systems that would be multiple millions of dollars in today's money.
Peanuts really, when compared to the costs of running an oil exploration ship.  (I was once told that operating costs for the RV
Shell America were around $10,000 PER HOUR.)  When oil prices collapsed in 1986, my company withdrew from that market (closed the
division), as there were simply no more orders coming in at all.  (Fortunately, they had lots of other work, so I just changed
projects.)

Don't get too complacent.  The oil boom/bust cycle is not dead and prices WILL go back up.  I have no doubt we'll be paying close to
$5/gallon again.  It's only a question of when
http://www.investopedia.com/articles/investing/100615/will-oil-prices-go-2017.asp

Randall