When the clock struck midnight last Saturday, something unusual happened in a quiet port city in Texas.
Before the second hand could makes a single revolution around the clock, a shift manager at the Motiva Enterprises refinery — the United States’ largest oil refinery — suddenly found himself with 800 jobs to fill.
Then again, maybe it would have been less noticeable if the refinery didn’t produce more than 600,000 barrels!
In fact, it’s been more than three decades since we’ve seen a scene like this:
United Steelworkers’ rally cry of “unfair labor practice strike” may not have the same zip to it as some other catchy slogans that come to mind, but the consequences are just as dire.
For the record, the latest round of strikes includes three refineries and a chemical plant, totaling more than 1,300 workers. Combined, the facilities had a capacity of about a million barrels per day.
At last count, there are now more than 6,500 union workers on strike from more than a dozen refineries and plants across the United States.
Yes, the last time there was a strike of this magnitude, Wham! was at the top of the charts.
More important, however, is what this strike could mean to you… and your wallet.
Since February 9th — a little more than a week after these workers began striking — the price at the pump has risen over $0.13 per gallon.
Granted, gasoline still costs a buck less than it did a year ago, but there’s an important statistic I want you to keep in mind…
Together, these refineries account for 20% of total U.S. production capacity.
That’s also not to mention that demand for petroleum products during January grew to its highest level since 2008. According to the API, demand increased to 19.2 million barrels per day last month — 1.5% higher than a year ago.
Yet over the past two decades, U.S. consumption levels have been relatively flat:
Click Chart to Enlarge
Don’t let that fool you; at this pace, we’re still on the hook for more than one-fifth of all the petroleum consumed on earth, and our steady thirst for black crude is simply one of the realities we’re facing over the long term.
And it’s an entirely new ball game right now for drillers…
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Back to Boom Times?
If you had asked me at the outset of the tight oil boom around 2007 what companies would do during a sustained period of low oil price, I would be hard-pressed to answer you.
Look, individual investors should understand by now that with great tight oil production comes an even greater price tag. Remember, these wells come at a cost of several million dollars apiece, and it’s not always economical to complete a well in an ultra-low price environment.
And that’s exactly what’s happening right now.
Some of the biggest players in the shale boom are starting to delay completions on their wells until oil prices move higher.
In North Dakota, for example, about 750 wells were waiting to be completed at the end of 2014. This is more than you’re typical backlog, however, since companies are actively delaying this activity.
In other words, we’re staring at yet another catalyst for a slowdown in production growth. And since crude oil prices are expected to remain low until at least the second half of 2015, it’s easy to see how some people may feel stuck between a rock and hard place.
For the last few years, I’ve told my readers that the name of the shale game isn’t about how much oil you have underground but rather how efficiently you can extract it.
At no other point is that more critical to a well’s success than during its completion stage. We may have been hydraulically fracturing wells since the late 1940s, but it’s only recently that drillers have been perfecting their technique.
And ever since crude prices started dropping last summer, a few small players have found a way to capitalize on one fracturing technique that allows them to drastically cut both time and money.
In fact, it’s an option that’s far less expensive and eliminates as much as 85% of the cost it takes to normally drill and fracture a new well.
The process will not only provide a hedge against further oil price crashes, but its profitability increases significantly when crude markets rally.
I’ll tell you precisely what that next step is on Thursday.
Until next time,
Keith Kohl
Check us out on YouTube!A true insider in the technology and energy markets, Keith’s research has helped everyday investors capitalize from the rapid adoption of new technology trends and energy transitions. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital, as well as the investment director of Angel Publishing’s Energy Investor and Technology and Opportunity.
For nearly two decades, Keith has been providing in-depth coverage of the hottest investment trends before they go mainstream — from the shale oil and gas boom in the United States to the red-hot EV revolution currently underway. Keith and his readers have banked hundreds of winning trades on the 5G rollout and on key advancements in robotics and AI technology.
Keith’s keen trading acumen and investment research also extend all the way into the complex biotech sector, where he and his readers take advantage of the newest and most groundbreaking medical therapies being developed by nearly 1,000 biotech companies. His network includes hundreds of experts, from M.D.s and Ph.D.s to lab scientists grinding out the latest medical technology and treatments. You can join his vast investment community and target the most profitable biotech stocks in Keith’s Topline Trader advisory newsletter.
