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Arctic National Wildlife Refuge I

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An odd twist has appeared in our long national debate about opening portions of the Arctic National Wildlife Refuge to oil firms for drilling..

The twist is this: at a time when the oil companies themselves aren't pushing for any new rights in the area, they're about to get those rights handed to them anyway. One of those you'can't-get-it-until-you-no-longer-want-it gifts.

Today I want to focus on why the oil companies no longer want this. Tomorrow we'll talk about why they may be about to get it.

This part is easy: they don't want it because they're holding too much oil already. The world is awash with the stuff.

Recall that in early 2013 the price of Brent (North Sea) crude was above $110 per barrel. It stayed in that neighborhood, which seemed normal at the time, until mid 2014 and then began a historic collapse, getting to $50 a barrel by the end of 2014, then it firmed briefly until the summer of 2015 and collapsed again, getting below $40. (I'm omitting discussion of the other major benchmark crude, West Texas Intermediate -- it would complicate the story without changing anything essential).

Since that low in the $30s, there has been a bounce, but not a very vigorous one (a "dead cat bounce" in the colorful cliche). For the last year, Brent has been trading in a range near $45 and $60, an equilibrium that would once have been unimaginable back when people were talking about "peak oil."

Those are not ancient dates. This was a recent and quite severe shock to the industry, one that came about in large part due to new North American production techniques: Canadian oil sands and US fracking. Another factor: the Obama administration gave at least tentative nods to pipeline programs that would help bring oil produced in the North American interior into the world markets, and there was also a slow down in consumption in China.

Companies like the alma mater of the Secretary of State of the United States are not in search of drilling rights in ANWR. On classic supply/demand grounds, they want to do less drilling, they want to start unloading inventory they're holding.

There have been times in recent decades when Big Oil was pressing for drilling rights there, but they have generally been foiled.

So ... why are they about to be handed rights they don't want? A thought on that tomorrow.


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