There are two interesting articles over at Bloomberg about oil prices.  The first says that the United States shale oil is coming to be seen as the world’s swing producer, or in other words, it has the most control over price and availability of oil on the market.  That’s good for the United States, but may be bad for prices.  The United States doesn’t have the ability to just turn a spigot and produce more oil when demand increases.  We have a bunch of wells drilled, but they need to be fracked and brought online, which can take months.  Getting laid-off crews back together adds time to that.  Not being able to respond quickly to market demand means that prices could jump a lot in a short period of time.  When that happens, everybody and their dog gets back into the oil and gas development game, and within a year or two there’s an oversupply, driving prices down.  The unpredictability would make for a rough time economically for most of us.

The second says that big oil companies fear a big jump in prices in the near future, which meshes well with what the first article says.  Some companies are expecting low prices for at least a few years, but most companies are expecting a decrease in supply leading to an increase in price.

The United States oil and gas industry has never been known for moderating itself well.  When prices rise, everyone opens the spigots and starts developing new plays.  When prices drop, everyone shuts down production and abandons projects.  There are very few players who work slow and steady, with a real long-term outlook.  It would be good if a few more of the big companies would think long-term.  I know this goes counter to the culture of getting the biggest short-term dividends for stockholders, but it would certainly be better in the long-term for everyone.