Shortly after a Green Bay Packer 1-2 start to this season, local media and fans were writing off the entire season as totally lost. Aaron Rodgers, the Packers quarterback, told everyone on a Green Bay radio show to just “R-E-L-A-X”. Sage advice for the press and other prognosticators who have been wringing their hands on the recent precipitous drop in oil and the unwillingness of OPEC to impose new production quotas at their meeting last week in Vienna.

As I noted in a previous post, it’s not all that surprising that the “Empire” would strike back to protect their competitive position against the US in the global oil marketplace. Lower oil prices can be sustained by a few countries like Saudi Arabia who can afford to ride them out and both attempt to put a damper on US development and also use them as a geopolitical weapon.

US oil production has risen by 80% since 2008. Our oil output is now approximately 9,000,000 barrels daily (out of 30,000,000 globally) and rising. The US increase over this period is greater than the total output of every OPEC country with the exception of Saudi Arabia. With countries like Libya recently exponentially increasing its output and world demand stalling there is, at the least, a momentary supply surplus. The bottom line is that US oil and gas is competitive with OPEC. Once that’s accepted, it’s as simple, and as hard, as a supply/demand balance.

To those who have predicted that oil prices below $85 per barrel would lead to a suspension of US shale and other oil field development and the subsequent suspension of capital investment in polymer plants and the like, a recent IHS analysis would beg to differ. IHS estimates that much of shale oil which was thought to be vulnerable at oil prices under $85 would still be economic between $50 and $70 dollars a barrel and even more efficient extraction technologies will continue to lower the break-even.

That’s not to say that those who have announced capital expansions in the US petrochemical markets are not being asked to review their plans, but to overreact to the current situation would be premature at best. For now the best thing to do is…R-E-L-A-X, and see what evolves over the next weeks and months. After the Rodgers comment, the Packers won eight out of their next nine games.

We will continue to search out and post articles of interest on the global oil and gas market as they apply to the polymer business.