Why does the price of oil start fluctuating wildly around 2004-2006? Shouldn’t the unlimited supply of shale oil mean the graph should be going down to at least pre-2000 prices? Why did it start around 2005-2006?
https://preview.redd.it/vjxeekte10hc1.png?width=1323&format=png&auto=webp&s=f2832aae24e87a679e5346e81d2ee0ec30f6b400
You can play around with the data here: [https://fred.stlouisfed.org/series/POILBREUSDM#0](https://fred.stlouisfed.org/series/POILBREUSDM#0)
Interestingly, the graph for natural gas looks exactly like what you would expect from huge new reserves being brought online after 2006. See it here: [https://fred.stlouisfed.org/series/DHHNGSP](https://fred.stlouisfed.org/series/DHHNGSP)
​
​
​
by Bumpy110011
2 comments
Commodities are wildly volatile. Other volatile assets classes are stocks, high yield bonds and beanie babies, to quasi-paraphrase Oscar Wild.
Seriously, Iraq invasion Redux and eave of Housing boom/crisis will do that.
Shale oil supply isn’t unlimited, it still has a BPD cap, and that is the time period when it started to come into its own. It wasn’t always as cheap to extract as it was 2008+. Fracking has been around since the 40’s, but the super high oil prices in the mid 2000’s driven by OPEC (and which allowed their poorer member states to create outrageous, unsustainable budgets) gave the US and fracking a reason to ramp up production. Technology improved, costs of extraction came down, and production ramped up rapidly. This subsequently caused a crash in the price of oil (and had deleterious impacts on the aforementioned OPEC states).
A lot of people were betting on oil roaring back, but I couldn’t see how since the supply in the market would always increase from fracking due to the now lower break-even price.
Anyway, that’s my take on it.