Peak Oil in a Fact-Free World: the New "Oil Bonanza" in West Texas

Peak Oil in a Fact-Free World: the New "Oil Bonanza" in West Texas

So, the USGS comes out with a press release that the media immediately diffuse in terms of a great discovery: 20 billion barrels, somewhere in Texas in a place called "Wolfcamp".  Bloomberg multiplies the number by the current oil price and comes up with a title that reads: "A $900 billion Oil Treasure," for a piece that tells of "bonanza" and of "the gift that keeps on giving". USA today speaks of "The Largest Oil Deposit Ever Found in the US". 

Great fun, and all fact-free! But let's suppose, for once, that facts mattered. What should we say about the "Largest Oil Deposit Ever Found in the US"? One point is that nothing new was "found;" the Wolfcamp formation was well known and already being exploited. The USGS just made a new estimate; probably valid within the assumptions made; but it is just that: an estimate. It doesn't mean that these resources have been discovered (note that the USGS explicitly says "undiscovered.") So, what all this means is that, statistically, these resources should be there, but nobody can be completely sure and it wouldn't be the first time that these estimates turn out to be optimistic. (in this case, the round number "20" is more than a little suspicious). 

But never mind that; let's assume that these 20 billion barrels are there for real. How does this amount stack up in comparison with the world's oil situation? Here are some data, taken from Bloomberg (not exactly a den of Cassandras).

 

DYI:  Oil and gas prices have long been known for their roller coaster prices.  Prices are affected by war, inflation/deflation, bad economies/good economies, market manipulation and few more that I haven't thought of.  One thing is clear major discoveries of oil and its cousin gas is on its decline. The availability of future supplies are what countries and global corporation are fighting over. This is what all of the anti-Russian rhetoric is to carve up Mother Russia especially east of the Ural Mountains for her oil and gas deposits.  This is NOT a new discovery just a new estimate of an old find.  The days of easy to find oil and gas are OVER, now it is increasingly expensive to pull the carbon to the surface.

What is holding this over inflated market up is more than just ultra low interest rates it is low oil prices giving the Fed's massive room to inflate the currency without the cost of living going to the moon.  DYI's Oil Indicator shows just that:

The Oil Indicator

11/1/16
Updated Monthly

Oil Prices: 
11/2/15.....$48.09

10/31/16...$46.54   

DOWN 3.22%
(oil prices approximately one year earlier due to weekends & holidays)
ANS West Coast prices   

 OIL INDICATOR  POSITIVE

Oil prices are well known for their volatility in the short term, longer term due to dwindling reserves energy prices are in a secular bull market.  Technologies such as fracking will extend the life of oil fields but major new discoveries arrive at a snails pace far slower than the world's growth.  

As long as prices rise in a slow and orderly pace our economy can adjust to those changes, however if prices spike (international tensions, war etc.) high energy costs behave as a massive deflationary tax. This will send our economy tumbling down and very possibly the U.S. stock market.

If oil prices rise greater than 75% from one year-earlier level, investors at that time should shift their portfolio geared towards deflationary times.  This would be oil indicator as negative.

If oil prices rise from one year-earlier less than 10% or drop then the inflationary play is in effect; a positive for economic growth along with possible higher stock prices.

Where to find one year-earlier oil prices?  Alaska Department of Revenue    

Oil indicator positive                 
20%  REIT's
20%  Energy
20%  P.M.'s
40%  Small Caps
  0%  Lt. Gov't Bonds

Oil indicator negative
  5%  REIT's
10%  Energy
10%  P.M's
10%  Small Caps
65%  Lt. Gov't Bonds

Vanguard Funds

REIT's
REIT Index Admiral  VGSLX

Energy
Energy Fund  VGENX

Precious Metals (P.M.'s)
Precious Metals and Mining Fund  VGPMX

Small Caps
Small Cap Value Index Admiral  VSIAX

Long Term Government Bonds
Long-Term Government Bond Index Admiral  VLGSX

Disclaimer

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This site strives for the highest standards of accuracy; however ERRORS AND OMISSIONS ARE ACCEPTED!

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DYI