Yogi Berra, a former American baseball player and member of Major League Baseball’s Hall of Fame, is well known for his many malapropisms. Even those of us who are too young to have heard them when they first left his lips are familiar with many of these memorable phrases.
And this one is certainly applicable to the cycles of boom and bust in the oil industry.
People are kind of funny; we seem to have a very limited memory of some less-than-pleasant events in our lives, which is probably a good thing. When times are good and things are moving forward, we all get caught up in the momentum and roll with it, never knowing how long it will last but enjoying the ride.
But just like every industry, there comes a time when things cool down. Basic economic theory teaches us that economies can’t exist in an environment of uncontrolled and unending growth. Every economy and every industry will go through a cycle of contraction and control.
This is not necessarily a bad thing. It gives those involved in the industry a chance to catch their breath, regroup and plan for the future.
Those who fear the contraction the most tend to be those who are the least prepared. These are the folks who have overextended themselves and have lost equity, and thus, value, in their business. Read more “It’s Déjà vu all over again!”