WSJ's Jenkins Says Record Low Oil Prices Due To Global Instabiltiy; Doesn't Mention The Bakken -- January 6, 2016

Here we go again.

I think this is the third time I've posted the graphic above.

I thought of this graph after reading this op-ed in today's WSJ. I like Holman Jenkins. He is definitely smarter than I on these things, so I have to assume he is correct on this issue and I am wrong.

I may have misread his op-ed but I understand him to be saying that the rivalry between Saudi Arabia and Russia is the reason the price of oil is plummeting, rather than the oft-stated reason that it's the other way around, that the low price of oil has brought on the rivalry between Saudi Arabia and Russia. I may have that wrong, but the story is at the link.

The article started off nicely:

Since 1918 and the full flowering of the automobile age, the average U.S. domestic price of gasoline has rarely fallen below $2 or risen above $4 as measured in 2015 dollars. At today’s price of $1.99, gasoline is approaching its all-time low in inflation-adjusted terms.

In 1965, gasoline sold for 30 cents. In 1965 dollars, today’s price is 26 cents. So, yes, the current oil price depression is not ordinary.

Those who see a price recovery coming soon note that expensive projects to wring oil from Arctic waters or Canadian oil sands or the deepest Gulf of Mexico are being halted. Once halted, they won’t easily be restarted, so oil in the future will be undersupplied once today’s excess inventories are burned off and producers are done eking out revenue based on capital they’ve already spent.

This:

Saudi Arabia, which peak oil theorists insisted was on the verge of exhausting its major fields, recently tweaked production to a record-beating 10.5 million barrels a day, low prices be damned. The motive: Riyadh’s undeclared war against Iran and Iran’s ally-of-the-moment, Russia.

Then this:

Russia, whose energy development was expected to decline once sanctions cut it off from Western capital, surprised many by setting a post-Soviet record of 10.8 million barrels a day in December.

Jenkins conveniently forgets to mention that North Dakota oil production increased more than one-half percent month-over-month in October, 2015 (most recent data available) despite:

• huge cutbacks in well completions
• huge drop in the number of rigs
• huge drop in new wells being spud

Jenkins may be correct; that the low price of oil is due to Russia's record-setting production and Saudi Arabia's production. Something tells me Saudi Arabia sees it differently.

By the way, Russia may have set a record, but annual production barely budged. The same goes for Saudi Arabia.

Jenkins mentions "shale" once in passing, but not in the sense that shale had anything to do with low oil prices.