Thursday, January 28, 2016

Oil Patches and Farms

Lowest gasoline prices in years. Good news for many. Disaster for others. My late father drummed into my thick head that every boom is followed by a bust. The oil patch had a great run but now is busted. What is the cause?

All this is well beyond my understanding. I’ve read that speculation in options to buy futures, as opposed to futures, exceed 250% of known oil reserves. Funny money chasing funny money if you will. Trying to make sense of it all might make me a Bernie Sanders voter.

Looking around my local area you see acres of idle equipment.

 You see parking lots that were jammed six months ago with lots of empty spaces.

I feel for the people. A few took this opportunity to build savings, reduce debt and buy modest homes. Others are looking at 72 month notes on $50,000 pickups and are underwater on $450,000 homes. One woman I work with rarely sees her husband as he moves around the country to where he can find work. He has great skills so keeps busy but at a personal price.

We still have rigs working in the area but mainly working existing wells to optimize their output.

The silver lining in this economic cloud is the huge increase in infrastructure and equipment will be there when the market conditions improve. At some point they will as we won’t stop using oil.

Our local economy is firmly anchored by agriculture. We’ve had enough winter to keep the fields snow covered. The mountain snow pack is at or above normal. The aquifers are in better shape than they have been for years. Today I visited the Colorado Farm Show. The atmosphere was upbeat.

I try to make this show each year to restock from the one glove vendor that has real  XXXL leather gloves, good quality, and reasonable prices.

Great place for people watching. Little kids climbing all over the farm equipment, for example. Surely the nanny staters and helicopter parents would suffer apoplexy but no one at the show seems to mind. Of course, their fathers are right next to them climbing on the machinery.

These are the politest people you will ever meet. The glove booth had some candy in a container at the edge of the table. Watched a small hand dart in and grab a piece. The young man turned to find his mother looking right at him. With a subtle nod from the booth owner to the mother, the mother then gave her child a slight nod.

The large number of laptops, tablets, and smart phones scattered around the place shows farmers and their suppliers aren’t ignorant boobs.

 Standing next to a $750,000 tractor (prime mover?) made me think what joy it would be to be a farmer. The memories of my younger self of the sheer hard work involved soon dissipated those thoughts.

Had a great BBQ  (by Colorado standards) sandwich at the FFA run concession. Outside some salesmen were working a Ram Truck display. Made me smile to know I wouldn’t be doing that anymore.


CenTexTim said...

After the last oil bust there were trucks here in Texas with bumper stickers that read "Please Lord, let there be another oil boom. This time I promise I won't piss it away."

Looks like that lesson wasn't learned.

On a more serious note, Saudia Arabia and the OPEC folks don't mind - and may even encourage - busts like this one. It gets rid of the smaller producers and shuts down wells that produce oil at the margin. Saudi Arabia's cost of production is less than $10 per barrel. They can ride out low prices to maintain/expand their market share.

Well Seasoned Fool said...

Some folks are speculating Saudi Arabia is burning through their money reserves. Other OPEC countries spend it as fast as they get it.

Lots of indicators pointing to a world wide financial collapse. Interesting times?

Momma Fargo said...

I know how low gas prices and the oil bust make a mess of Wyoming. I hope they climb and stablize so we can put some folks back to work. I don't like paying $4.00 a gal tho. Seems we could come to a happy medium somewhere. The agriculture industry is the same way. The little guys don't get to line their pockets like the corporate giants.

Well Seasoned Fool said...

Agree with you about agriculture.

Wyoming will survive but with lean times. Their ace in the hole may be the huge lithium find near Rock Springs and the rare earth deposits near Upton.

A new administration may end the war on coal.

Old NFO said...

Yep, those who are sensible will always win out. They live within their means, and actually bank money against the bad times. And that's good news for the farmers!

Well Seasoned Fool said...

I'm so happy all my sons are sensible about money and debt.