Halliburton, drilling and gas prices

Here’s something for the “Drill Baby Drill” crowd. After a steady decline during George Bush’s administration, U.S. domestic crude oil production has climbed during the Obama administration to levels last seen in 2004, when gasoline prices were below $2 per gallon.

US domestic petroleum production chart

If we include last week’s US EIA data, we can extend that graph up to above 5.6 million barrels per day of domestic production. Gasoline averaged $1.60 per gallon when we last had that production level in 2003.

Granted, this increased activity began during Bush’s tenure, but there doesn’t seem to be much evidence of production slowdowns due to administrative decisions or environmental regulation. Donald Trump said he would work to increase domestic production if he were president, but the free market seems to be doing a fine job of that just on its own.

Halliburton reports a a record $5.3 billion in revenues for the first calendar quarter of 2011, compared to a relatively meager $3.8 billion a year ago. They attribute this strong growth and their higher margins to increased demand for their oil field services due to drilling activity in the United States.

The thing everybody ignores: Oil is a worldwide commodity. Increased use of gasoline in China, India, Egypt, Saudi Arabia, and everywhere else with an improving standard of living means less for Americans. Worldwide crude production has been flat to declining since 2008 in spite of massive investments by oil producers to squeeze more black gold out of the ground, which means the supply has been steady to declining while demand has increased.

The law of supply and demand means retailers control market pressure by adjusting the price. Hence, four dollar gasoline. It’s that simple. If you want to burn it, you pay the price. If you don’t want to pay the price, you go without.

It’s a tough lesson for Americans and for the world. The economic pie has gotten larger and larger since Industrialization began 600 years ago. Our economic theories absolutely count on this growing pie because this model has always worked before. More raw materials means more people can get more stuff, which translates into higher GDPs worldwide. More profits for Halliburton, Exxon, BP and Shell means bigger returns for shareholders, more jobs for workers, and more economic activity all around.

It’s been easy to push the consequences of this growth out of our minds. Production and manufacturing and refining are in those “other” places where brown skinned people live, and we pretend we do them favor bringing our consumer lifestyle to the hinterland with the same enthusiastic righteousness of Christian missionaries 300 years ago. We’re beginning to push against the boundaries of growth, though, while our worlds have become much smaller. Our political battles are beginning to center on the question of how much we’re willing to sacrifice for the sake of material goodies. Is it really worth it to destroy what remains of our wilderness and human dignity for more exurban McMansions and our heavily consumerist lifestyles? What do we value: the other human, or ourselves?

And *ahem* speaking of shiny consumer goodies…

Chart from Climate Progress using US Energy Information Administration data.

10 Comments

  • Anonymous
    April 27, 2011 - 12:52 am | Permalink

    Good analysis. What it misses is that since the US uses about 20 million barrels of oil per day, the spike of 0.5M barrels per day doesn’t even help our balance of payments very much. But maybe you were trying to soft pedal (no pun intended) your story.

  • April 27, 2011 - 1:20 am | Permalink

    Well stated. I seriously like the matter-of-fact tone. It’s so easy to stray from that when this issue is concerned. Refreshing.

  • April 27, 2011 - 2:35 am | Permalink

    Drilling declined because tree huggers/legal teams would block drilling at every turn, and because they didn’t want to make it easy for Bush. Now that Obama is president, go ahead and drill if you need to/if it’ll make him look good or easy for him. Also, where are all the anti-war protestors that were so vocal and visible during the Bush years? Where’s Sheehan? Where’s the “death count” every morning on all the morning shows and nightly news. What a joke!

  • Stephen
    April 27, 2011 - 4:57 pm | Permalink

    So, this global growth has suddenly jumped by 30+% in the past several months carrying oil prices with it? That seems hard to believe. Building production capacity to consume the oil doesn’t happen that fast. This is more likely a scam to raise the price.

  • April 27, 2011 - 5:25 pm | Permalink

    China’s economy grew 9.7% last quarter. South Korea’s economy grew 4.6% last quarter. India is expected to grow by about 8% this year.

    It doesn’t take much increased demand to cause dramatic price increases in inelastic commodities like gasoline. Gasoline is indispensable to American life, so big price swings happen when there are even modest impacts on the supply.

    Saudi Arabia claimed they didn’t increase their production as much as they could because of oversupply in the market. That’s clearly a scam. The two schools of thought (both of which are probably at least partly correct) on the real situation there: (1) Saudi Arabia is punishing the West for their support of pro-democracy movements in the Middle East while reducing supply to raise income to support their own regime, and (2) Saudi Arabia doesn’t have nearly the capacity that they claim to have, as shown in recently disclosed Wikileaks cables.

  • April 27, 2011 - 5:26 pm | Permalink

    Soft pedal a little, but I also lost my track of thought :-) But you’re right, that half million barrels doesn’t help much.

  • April 27, 2011 - 5:27 pm | Permalink

    I forgot also to mention that a weakening dollar contributes to higher oil prices. Oil is priced worldwide on the American greenback.

  • April 27, 2011 - 9:04 pm | Permalink

    Since nobody else asked… what does the ASUS convertible have to do with the post? Did you just get one? And if so, how are you liking it?

  • April 27, 2011 - 9:32 pm | Permalink

    Because I complain about our consumerism, but, golly, those shiny things are just so irresistible, you know? The Asus just came out yesterday.

    I like consumer gadgets as much as anybody, I suppose, and it’s personally difficult for me (and I suspect for most people) to balance desire vs needs.

  • Anonymous
    October 1, 2011 - 11:34 pm | Permalink

    Setting aside the who’s to blame/who should be given credit issue, after declining every year since 1970, US oil production is on an uptick.  This, I understand, is due to the short term price spike in oil, the boom of shale oil and the declining power of OPEC to control the price.  For decades OPEC has been able to produce oil at ridiculously low costs.  The threat to anyone that invested in a project that could only be profitable at $50 a barrel was that at anytime OPEC could up production and knock the price down to $30 a barrel and knock everyone else out of the market.  If OPEC’s power is truly diminished, it will open up the oil production market to hundreds of new projects that will put a downward pressure on price over the medium to longer term.

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