Publications: Notes at the Margin

Implications of Applying the PC Analogy to Oil (December 15, 2014)


We foresee a prolonged period of low prices interspersed with occasional price jumps sparked by events such as the implosion of Venezuela’s economy. We predict a prolonged stretch of low prices because oil and gas production has been transformed by fracking. In the past, observers and analysts viewed resource production as an extraction business in which costs and prices rise over time as the better low-cost prospects tap out. Fracking has changed the situation completely. Fracking is manufacturing, not resource extraction. To make the point clearer, we draw an analogy here between crude oil production’s transition from extraction to manufacturing and the computer industry’s shift from mainframe units to personal computers. 


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