Oil price free-fall recently, reactions from the world is clear – Weak
outlook, Price to Fall further. One main reason is over-supply resulted from
the production of Shale Oil in USA.
outlook, Price to Fall further. One main reason is over-supply resulted from
the production of Shale Oil in USA.
Rewind and hear what Jim Rogers had to say about 1) Demand Vs Supply 2) Shale Oil & Gas 3) China Economy. I extracted part of the Q&A session within “International Business Times” dated 10 Mar 2014 as follows.
Supply and Demand
Q: You’ve argued that commodities are always driven fundamentally by
supply and demand. But have commodity prices been swayed lately by apparently
external factors, like U.S. monetary policy or bond tapering?
supply and demand. But have commodity prices been swayed lately by apparently
external factors, like U.S. monetary policy or bond tapering?
Jim Rogers’ Ans: Ultimately everything is supply and
demand. If tapering occurs, that certainly influences demand, if nothing
else. So ultimately it’s all supply and demand. Different things affect supply
and demand. War affects demand, for instance. It also affects supply. Money
printing affects demand certainly, though it doesn’t affect supply so much. In
the end, whatever happens, most things affect and influence supply and demand,
including tapering.
demand. If tapering occurs, that certainly influences demand, if nothing
else. So ultimately it’s all supply and demand. Different things affect supply
and demand. War affects demand, for instance. It also affects supply. Money
printing affects demand certainly, though it doesn’t affect supply so much. In
the end, whatever happens, most things affect and influence supply and demand,
including tapering.
Shale Oil and Gas
Q: What are your thoughts on developments in recent years that have
unlocked shale oil and gas? Some have said the U.S. energy boom is the most
important development in political economy in decades.
unlocked shale oil and gas? Some have said the U.S. energy boom is the most
important development in political economy in decades.
Jim Rogers’ Ans: I would urge people to go out and
see what’s happening in the field. Yes, it was all very exciting in the
beginning. But now we’re finding out that those wells are very short-life
wells.
see what’s happening in the field. Yes, it was all very exciting in the
beginning. But now we’re finding out that those wells are very short-life
wells.
Production dropped by 40 to 60 percent in the first year,
and the demand for rigs to drill in the shale
fields is down 75 percent in the last couple of years. The demand for pumps is
down 50 percent. So it’s not as much fun as we’d hope it would be. In some
countries such as Poland, people have given up their shale leases, because
they’ve realized it’s just not so simple. I read all the hype, but again I’d urge people to go into the fields and see what’s actually happened, rather than reading what journalists hype. Natural-gas
prices have quadrupled since the bottom.
and the demand for rigs to drill in the shale
fields is down 75 percent in the last couple of years. The demand for pumps is
down 50 percent. So it’s not as much fun as we’d hope it would be. In some
countries such as Poland, people have given up their shale leases, because
they’ve realized it’s just not so simple. I read all the hype, but again I’d urge people to go into the fields and see what’s actually happened, rather than reading what journalists hype. Natural-gas
prices have quadrupled since the bottom.
They’re not quadrupling because this is the
most important thing in several decades.
most important thing in several decades.
US Net Exporter of Energy?
Q: But if the U.S. can become self-sufficient in energy or a net
exporter, as some foresee, won’t that be very significant?
exporter, as some foresee, won’t that be very significant?
Jim Rogers’ Ans: Well, if cows can fly,
that’s very significant too. But present indications are that’s not going to happen. But if that happens, sure. That
would change things dramatically. Like if Germany became a net exporter of
energy, my God! That’d be one of the most significant things of the century,
not of the decade.
that’s very significant too. But present indications are that’s not going to happen. But if that happens, sure. That
would change things dramatically. Like if Germany became a net exporter of
energy, my God! That’d be one of the most significant things of the century,
not of the decade.
But the fundamentals
indicate it’s not going to happen, despite the current hype. Demand for drilling rigs is down 75 percent. Why do
you think the rigs are down? If it was so wonderful, everybody would be
drilling like crazy. Gas prices have quadrupled. People would be out there
drilling like crazy people, when prices have quadrupled. The facts on the
ground are: these [developments] are not as exciting as
we thought at first.
indicate it’s not going to happen, despite the current hype. Demand for drilling rigs is down 75 percent. Why do
you think the rigs are down? If it was so wonderful, everybody would be
drilling like crazy. Gas prices have quadrupled. People would be out there
drilling like crazy people, when prices have quadrupled. The facts on the
ground are: these [developments] are not as exciting as
we thought at first.
Now, hopefully, mankind
will figure out a way to overcome the technological
problems. Mankind always has. But so far we have
not been able to figure that out.
will figure out a way to overcome the technological
problems. Mankind always has. But so far we have
not been able to figure that out.
The same applies to shale
oil. Shale oil production drops even faster than shale
gas. This doesn’t even get into the whole environmental question of
water, etcetera. [e.g. concerns over environmental
damage caused by fracking]. I have no idea whether the environmentalists
are right or not.
oil. Shale oil production drops even faster than shale
gas. This doesn’t even get into the whole environmental question of
water, etcetera. [e.g. concerns over environmental
damage caused by fracking]. I have no idea whether the environmentalists
are right or not.
China Economic Slowdown
Q: What about demand for natural resources? The talk of a Chinese
economic slowdown, could that alone derail commodities?
economic slowdown, could that alone derail commodities?
Jim Rogers’ Ans: Well, if you take out a
big buyer of anything, of course it has an effect. You cut demand anywhere, and
it hurts. But remember, the Chinese economy is one-tenth the size of Japan’s,
Europe and America [combined]. The Chinese have done a brilliant job. But
America, Europe and Japan are 10 times bigger than the Chinese economy.
big buyer of anything, of course it has an effect. You cut demand anywhere, and
it hurts. But remember, the Chinese economy is one-tenth the size of Japan’s,
Europe and America [combined]. The Chinese have done a brilliant job. But
America, Europe and Japan are 10 times bigger than the Chinese economy.
The Japanese, the Americans
and the Europeans are moving heaven and earth to increase demand in those
countries. Those countries as a group are more significant than China.
and the Europeans are moving heaven and earth to increase demand in those
countries. Those countries as a group are more significant than China.
China is trying
to cool off, and it should. My gosh, it should – I hope they do cool down. But
that’s not the end. That’s not the whole demand story in anything, and certainly not in
commodities.
to cool off, and it should. My gosh, it should – I hope they do cool down. But
that’s not the end. That’s not the whole demand story in anything, and certainly not in
commodities.
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