Fracking Out

Out where the river broke
The bloodwood and the desert oak
Holden wrecks and boiling diesels
Steam in forty five degrees
--Midnight Oil

Nice graph portraying the boom bust cycle playing out in US oil production. Cheap credit and suppressed rates ignited an orgy of debt-financed drilling and fracking projects. From a low below 200 in 2009, rig count exploded to a high of about 1600 in 2014.

Rig count has now collapsed by more than 30% as supply finally swamped demand in late 2014. If the world economy continues to slow, rig count count fall much farther.

An interesting question is how all of these projects funded under the assumption of high oil prices will be able marshal enough cash flow from operations to pay back their creditors.

This is a classic example crack up boom and bust courtesy of the Federal Reserve.