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Posted by on Jan 17, 2016 in Economy, Energy, International | 9 comments

Oil Prices

Oilwell-2.jpegThe price of oil (WTI) closed at less than $30 a barrel  on Friday.  At first glance this might look like a good thing but it’s not.

  • Venezuela is suffering from an economic crisis and while some of the reason for that is incompetence it is largely associated with the drop in the price of oil which represents 95% of the country’s economy.  This will not end well and don’t be surprised if there is a military coup in the not too distant future.
  • Saudi Arabia too is suffering.  The Saudi Royal Family has stayed in power largely by bribing their citizens with subsidized nearly everything.  That is becoming increasingly difficult as the price of oil falls.  Expect possible instability there which could further destabilize the region. I would guess the Royal Family keeps their fleet of personal jets fueled in case they have to evacuate to the various bolt holes they have set up in Europe and North America.
  • The economy of Russia is also taking a major hit.  Even as a past intelligence analyst I wouldn’t hazard a guess as to how that will turn out.
  • Here in the United States we will not be immune.  Much if not most of our oil production now comes from fracking shale oil.  This is mostly done by small and medium size operators.  It is a very leveraged operation and with the low price of oil they can’t service their debt.  If they start going into bankruptcy it could send shock waves through the financial markets.  The booming state of North Dakota could suddenly find itself with a lot of unemployed people and a big mess to clean up.

The destabilizing effects of cheap oil may not be worth the price.