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The condition of the economy has a lot of people wondering what possibly could happen next. Many industries and market sectors are on the skids, but one industry that has a pretty rosy future is the drilling industry. Of course, there is an upside and a downside to all of this, and so many factors drive and affect our business that I think a little examination of the cause and effects might help.
Everybody who doesn't ride a bicycle to work knows that the price of gasoline has gone up. A lot. I've received emails and comments from friends saying that we should boycott this station or that oil company. Let me tell you something: The stations - or, for that matter, the oil companies - don't set the price. First, oil is a worldwide fungible commodity. What the heck does that mean? It means that oil is sold auction-style. If you boycott the auction, there still will be other bidders. Such as the Chinese or the Indians; they need it for their growing economies, and are willing to bid a lot to get it. If you want some, you have to bid.
Second, the price never will permanently fall below the costs of production, plus taxes. We already have drilled up and sold all the cheap oil. The oil we have left is harder (read: more expensive) to produce, and is found in increasingly hostile places. The third major factor affecting oil prices is inflation. Simply put, since the value of the dollar is being driven down to hide our government's inability to lead, and with the high costs of vote-buying, it takes more and more dollars, worth less and less, to fill your tank.
The last time we saw this was during the Carter administration. Per-barrel prices were high, the rig count was high, and business was a-booming. A lot of us made some pretty good money back then. Then inflation caught...