Hacker News Reader

> When prices rebounded in early 2020s, there was a lot of scar tissue in the industry about overproduction. Producers are now extremely conservative

In corporate America generally, it seems to be a widespread strategy to limit supply and drive up prices. Sometimes it's done explicitly and illegally, such as in rental housing (look up RealPage). Is there evidence that it's particular to shale production?

> I think the typical Democrat-Party view that "oil bad" and "oil corrupt" lacks nuance.

You said it, then said it lacks nuance.

I distinctly remember reading back in the day[0] the shale oil industry complaining how OPEC would drive up production with the sole intent of making shale oil extraction too expensive and bankrupting companies.

Apparently they went with the old "if you can't beat them, join them" defensive strategy.

[0] https://www.imf.org/en/Publications/WP/Issues/2016/12/31/An-...

Took way too long to find that link, thanks google...

A lot of the small outfits also went bankrupt and had to bail, leaving only the big players. It's much easier to cartel/collude when there are a lot fewer competitors. I think all the big guys got the message that slow and steady was the way to go, so they keep the prices high and simply don't pump more than they planned on. I saw one oil man on TV saying the days of razor-thin profit margins were over for his company and they were going to stick to their slow and steady strategy.

> This seems not far off from Q-Anon on the other side of the political aisle.

You either didn’t pay much attention to the sheer insanity of Q-Anon, or you view the world through an extremely partisan lens. Mentioning these two things in the same sentence is itself insane.

> Democrat-Party

I’ll put my money on option 2.

There's a common mental exercise I see where smart people will engage in armchair economics to explain what "must have" happened in some situation, or the way the word must work. It all sounds very convincing, but the problem is that there are dozens of other equally convincing macroeconomic explanations. Somehow the ones people tend to pick happen to excuse every rich person from any accountability and foster a "greed is good" outlook, even though the other equally good explanations (left unsaid) would imply the opposite.

You shrug off the FTC's evidence here, and put the word "conspiracy" in scare quotes to discredit it. But the FTC claims "Sheffield sought to align oil production across the Permian Basin in West Texas and New Mexico with OPEC+." and "Sheffield, for example, exchanged hundreds of text messages with OPEC representatives and officials discussing crude oil market dynamics, pricing and output." It feels to me like you're disregarding any actual facts and evidence in this case for your favorite macroeconomic explanation instead.

I think what you're witnessing is a defense mechanism that comes about as a response to cognitive dissonance that is related to their deeply held personal beliefs about how the world works and their role in those workings.

To admit such a level of failure of the global system that they identify so strongly with is like admitting a personal weakness to some people. so they reject that possiblility any way they can.

"If Texas leads the way, maybe we can get OPEC to cut production. Maybe Saudi and Russia will follow. That was our plan,” he said, adding: “I was using the tactics of OPEC+ to get a bigger OPEC+ done.”"

> excess consumption (travel etc.)

Could you explain what you mean by excess consumption?

There are obvious charitable interpretations of OP's meaning, but you ask for effort without any yourself. Could you explain what you're unclear about? Could you explain if you ask for clarity at all, or because you have an underlying unexpressed disagreement? Is it about the definitional existence of "excess consumption" or is it the precise details you quibble with?

A definition of Excessive consumption would be in order, because it suggests that there's a "right" level of consumption other than what the market settles on, gp did not quantify what counts as excessive, or why. This concept is new to me and warrants more than a single parenthetical example that raises more questions.

So high that it bankrupted a huge number of producers. What is so confusing?

On what basis can the bankruptcies be blamed solely/mostly on consumer behavior, versus the viability of many fracking companies being staked on an impermanently high oil prices? The oil industry is notorious for boom-and-bust cycles.

Who's culpable for the bankruptcy of businesses that were only viable under a Zero Interest Rate regime? Should we blame consumer exuberance - or excessive consumption - for pushing up interest rates and causing bankruptcies?

The Fed dropped the ball by keeping rates low. Their choice to keep them artificially low created mountains of problems that we’re still suffering from.

Notably at least partially due to political pressure from Trump - including threats to fire the chairman of the Fed - to avoid higher interest rates and even defaults on his and his families extensive real estate holdings.

[https://apnews.com/article/2a21e92ed9129e91e713495c9ef50050] [https://www.hindustantimes.com/business-news/kushner-compani...]

In the Antithesis of a trump supporter but don’t make it seem like Obama couldn’t have done anything when he benefited from the low rate environment too.

Did Obama threaten to fire the head of the Fed if he raised rates? Or say anything, actually? Because I don’t remember any of that.

Because if he had, then he’d be easy to blame. If he hadn’t then it’s squarely on the fed isn’t it?

Since Trump explicitly did take action, why should he not get blamed for his part in it?

What does that have to do with the original statement?

Consumers are not responsible for macro-economic changes that make a subset of businesses unviable. I was likening Shale Oil companies that could only be profitable at >$95 a barrel to companies that were only viable when capital was cheap - both groups should have known and planned for the respective numbers changing.

Again, what does that have to do with the original statement?

This entire thread is interrogating whether consumer behavior (excessive consumption ) is to blame for business failures as suggested, but never explained by the original statement.

It’s trying to describe excessive consumption, which is always going to be subjective - except perhaps if we use the description ‘drives up prices beyond historic norms’. Which is why they put it in quotes.

And excessive production is also always going to be subjective - except perhaps if we use the description ‘causes a glut of product which drives the price of a product below the reasonable/historic cost to produce that product’.

So excessive production is that which bankrupts producers. And excessive consumption is that which drives up prices unsustainably. Yeah?

> ... except perhaps if we use the description ‘drives up prices beyond historic norms’. Which is why they put it in quotes.

This makes little sense for oil - there are no "historic norms" for the price of oil; just a very wide band of prices. The OPEC cartel was formed was to coordinate production to tame price swings and increase profitability.

> So excessive production is that which bankrupts producers. And excessive consumption is that which drives up prices unsustainably. Yeah?

These cycles are normal, and self-correcting, lagging positive-/negative-feedback cycles are a recurring theme in many disparate fields. Governments, businesses and consumers may not like the implied instability, but picking a single point on the sinusoidal plot and declaring that "this is the optimal amount of consumption/production/profits"[1] seems misguided to me, simply on the basis that its inherently unstable.

1. Or declaring an optimal number of predators and prey if it's a prey-predator cycle.

So we agree that the original comment was no less ambiguous or confusing than after this analysis?

No, we are don't agree. I challenge the existence of a "correct" level of consumptions, and how it's derived is still ambiguous - all I have gathered so far is that it's below whatever it was when the shale oil companies went out of business. I can think of a couple of confounding factors, so I'm confused why consumer behavior should be assumed to be the primary driver here.

I don’t think it was? And the original quotes (looked like ‘scare quotes’ to me) showed the author wasn’t being very solid about it, or maybe even making fun of the idea.

IMO, the only way to ever even attempt to judge these things is in hindsight for the reasons you state.

My dude, people are allowed not to know what phrases mean. It regularly happens to all of us. And it is normally unclear what someone means on HN; usually we're all stirring the tea-leaves from 1-2 paragraphs of text and there are a lot of misunderstandings.

In this case I think he meant that government is taxing people who would avoid using oil and giving money to people who do use oil, distorting the market to use more oil than it would in a counterfactual world where policy was consumption-neutral. But given we're talking about government policy that is far from the only interpretation - in context he might mean a specific area, for example.

>>I think the typical Democrat-Party view that "oil bad" and "oil corrupt" lacks nuance.

Right. That is why, after 3 years of a Democratic Presidency and Senate, the US is producing more crude oil than any country, ever [0]. /s

If what you said about Democrats had even a shred of validity, that would not happen.

[0] https://www.eia.gov/todayinenergy/detail.php?id=61545