« Book Report: The Thirty-Nine Steps (play) | Main | You can be the shoe, I'll be the hat. »

Slide some oil to me, brother

I saw a fascinating New York Times story about Freeport McMoRan today, one of the benefits of paging through a print newspaper instead of clicking an on-line one. Well, anyway, Freeport is an old copper-mining company, with mines in Arizona and around the world, and with copper prices down a bit from their ridiculous high, they are of course feeling the squeeze. That wouldn’t be so bad for them, though, if they hadn’t, back when oil was a hundred dollars a barrel, bought some companies involved in oil exploration. Now, though, they’re fucked.

A have a vague recollection of having written about oil prices, ten years ago or more, making a point that there were lots of companies who had made detailed business plans that depended on crude oil being in the region of $30/barrel. Not oil companies, mind you, but shipping companies, transportation companies, and even more than that, companies who made things that shipping companies shipped, or used things that had to be shipped… this would have been 2005 or so, I’m thinking, and I would have had a great deal of sympathy for such a company. A company with smart people figuring out price points for its goods or services, figuring out profit margins, costs, personnel needs, capital investments, all that sort of thing, all of which assumed that goods could be shipped at a price that, in terms of the fuel component, was if not stable, at least predictable around a reasonable band of prices, as it had been for a long time. When Hugo Chavez warned that if we invaded Iraq, the price of oil would go up to a hundred dollars a barrel, it was an outrageous threat that was not taken seriously.

Those companies were fucked.

When crude started selling at a hundred dollars a barrel, in 2008 or so, companies started rethinking their plans. And for four or five years, that’s what the price was for crude. Yes, it was volatile, but oil was just expensive, that’s all. And a different set of businesses made plans based on that. In particular, exploration of new sources that required insane levels of capital investment became financially possible, because the eventual payoff would be so high. Now oil is at $30/barrel again, and those companies are fucked.

And you know what? I have no sympathy for them at all.

Tolerabimus quod tolerare debemus,