When adjusting for inflation, US oil prices are historically low
Sub-$60 oil is not the same after the post-pandemic run of inflation
Halloween is nearly here.
And that thing that’s going bump in the night and is freaking out oil & gas investors?
That would be sub-$60 oil.
As I write this post, the price of West Texas Intermediate (WTI), the benchmark US crude oil, sits at $57 per barrel.
That’s not a great place to be for oil companies.
It’s a low enough level that it threatens the dividend payments and share repurchases that have kept stock prices from cratering even further.
But we’ve been talking about $60 oil as an important psychological threshold for at least a decade, since the price crash that started in late 2014 and ultimately bottomed in early 2016.
After years of above-trend, post-pandemic inflation, $60 oil today is not the same thing as the $60 oil the industry talked about a decade ago.
In this post, let’s look at what exactly has happened to oil prices over the past couple of decades.
We’ll start with a look at the daily price chart. Then we’ll move quickly into quarterly average charts.
One of those quarterly average views will be of nominal prices. The other will be of “real”, i.e. inflation-adjusted, prices.
I explain in the post why I like these quarterly average views so much, and why executive teams pay plenty of attention to them.
We know from the headlines that oil prices are down.
But the casual understanding is more dismissive than I think is justified.
Today’s prices are historically low. And while the industry continues to accumulate efficiencies, there are other forces acting to push costs upward.
Let’s walk through the story of oil prices so we have a better sense of just how unique this moment in time really is, and so we can appreciate just how important this next chapter really is.
US oil prices have been on a multiyear decline
The chart below shows us just how steady the multiyear decline in US oil prices has really been.
