Oil price: Brent crude hits 11-year low
bbc.co.uk
bbc.co.uk
Most mom and pop oil companies have already been bought or have gone bankrupt as they were not profitable under $50/barrel. Supermajors will begin to go bankrupt and survival mode at $20-25/barrel. As soon as we see supermajors going under the Saudis will roll back their production in order skyrocket prices. It takes AT LEAST 18-24 months to get new wells and unconventional sites online and that's if the entire ecosystem is operational.
Where can you publicly determine the barrel price that the supermajors will bust at?
OPEC just doesn't control enough production capacity to dictate to the market any more. All the producers have become so dependent on oil revenue their response to falling prices has been to increase production as much as possible. They can't afford to cut production and thus cut their revenues without massively exacerbating the damage to their economies.
They're better capitalized than almost every oil producer in America for sure. Even once prices go back up again the memory of all of the bankruptcies is still going to linger on and drive up the cost of capital.
I doubt as many investors going to be willing to go all in on a second round of chicken with the Saudis.
Oil that can't be pumped profitably at < $80 / bbl isn't going to be magically become profitable when a better capitalized investor steps in.
Think about what will happen when 98% of the companies have gone bust. How quickly will you get the tools and more importantly people back into the industry once the Saudis have run the price of oil up to $300/barrel?
It would just take a small scale war in the Persian Gulf (KSA vs Iran) for the crude oil barrel to pierce through the $100 dollar level and soar even further.
Never say never.
Come next year, Iranian Oil will join the world market and drive prices lower.
If this is going to bankrupt the Wahabi and terrorism sponsoring House of Saud, I'm all for it
If I was Obama circa several months ago, i'd send Kerry over to the Saudis, i'd say "I intend to do everything I can to reduce carbon emissions, people want me to do it, and it needs to be done. There's maybe 20 or 30 real good years left. Who owns those years is up for grabs, but you're in the best position. Here's how we can solve both of our problems."
They've been talking about the regime imploding for practically 30 years now. Robert Baer predicted the collapse of the regime over a decade ago:
http://www.theatlantic.com/magazine/archive/2003/05/the-fall...
With what's happened in Northern Africa in the last few years and real elections next door in Iraq (and probably Syria within the next couple years) the Saudi people have to be on the brink. Saudi Arabia already has a defense budget the size of Russia's just to keep the country peaceful.
It's important to distinguish marginal cost vs profitability. A company can be operating at a loss for years (if not decades) as long as marginal cost of the product doesn't exceed their marginal revenue. To bring this in the context of oil prices: cost of extraction of conventional oil is around $3-5 dollars. This is how much it costs to operate a well with some minimum maintenance. However, this dismisses the cost of development of the well, i.e. of R&D. If you count that in you get closer to $15-$30 depending on the oil field. Higher for offshore, and higher for shale still. Cost of extraction for fracking is around $15 a barrel, but the R&D costs are much higher, to the tune of $40-60 total. Companies can sustain sunk R&D costs for a long time as long as they are maintaining healthy marginal profit. They will naturally not invest into new fields but that cushion can take years to have effect on the prices.
I sincerely hope it's true, but it's one of those snide comments that attempts to make legitimate concerns look stupid.
Stone is literally more expensive than oil. Note that at $2.00 / gallon, gasoline (refined oil) is twice as cheap as bottled water. At $35 / barrel (ie: $35 per 55-gallon drum), crude oil is literally cheaper than a huge number of commodities.
Crude Oil is roughly $0.65 per gallon. Definitely cheaper than stone by every measurement.
[0]https://en.wikipedia.org/wiki/Barrel_%28unit%29#Oil_barrel
Cheaper than bottled water? No it's not. You can find some bottled water that's more expensive, sure, but you can find bottled water that's cheaper too. I'm sure you can find some oil somewhere that's more expensive than good champagne, too.
Bottled water is a terrible comparison anyway, because most of what you're paying for is the "bottled." Oil is not cheaper than water in most places. Can you imagine paying 65 cents/gallon for your shower?
To gather them in kilotonnes you'll need to remove and sift the regolith layer. A lot more expensive than 'pick some up'.
http://www.businessinsider.com/bottled-water-costs-2000x-mor...
> > "The [bottled water] industry grossed a total of $11.8 billion on those 9.7 billion gallons in 2012, making bottled water about $1.22/gallon nationwide
Parent post says
> > > Crude Oil is roughly $0.65 per gallon.
I was under the understanding that you're paying for a purified chemical compound with Bottled Water. Very similar to Gasoline actually. Its a purified chemical that matches specific specs.
One is a chemical that you drink, the other is a chemical your car drinks. Beyond that, the effect is the same.
If you don't think Bottled Water is a good example, then I'll change the analogy to Gatorade.
It feels as though prices haven't fallen relatively here in Canada, at least not on the west coast.
(112.9c CAD / litre in Victoria, BC)
Last Christmas prices dropped significantly. There were $2.25 to $2.50/gal in California, but almost $1.20/gal in Arizona and New Mexico.
California has another $0.30-$0.50/gal in taxes that other states don't have. The price will always be higher.
It seems like we're experiencing peak oil demand, rather than peak supply.
I'm not sure if the "peak oil prophets" considered this possibility - that their warnings will actually be heard, measures will be taken and we will avoid running out of oil.
Now that we're here, is peak demand less scary than peak supply ?
Yes, much, because the world's economies don't grind to a halt. They become more efficient and keep running. That's a much better outcome.
This both makes it unsustainable for the competition to drill for oil, and creates a higher demand.
Once many of the competing (e.g. Western) oil companies goes bankrupt, OPEC can increase the prices and enjoy both higher demand and increased profit. At that point, it will take a long time before investors feel comfortable investing in oil again in fear of an identical situation. They also push renewables into a similar spot.
I was looking for a reference that shows debt vs. market cap of US oil companies, but cannot find it. It didn't look promising for the US oil companies.
Anyway, this doesn't have anything to do with peak oil, which we are likely passing these years (for conventional oil). Except we'll likely crash sooner if we increase demand.
It's not a new strategy—the well-capitalized oil companies do this every time the industry stalls. They call it "prospecting for oil on the floor of the stock exchange."
Many shale producers will go bust but others have tightened their belt and become more efficient. The technology itself has also gotten cheaper, allowing those wells to be profitable even at depressed energy prices. More will likely fail but the shakeout will leave the remaining shale producers in a very strong place.
The idea that "OPEC can increase the prices" is farcical at this point. OPEC has been in open revolt for a long time and can no longer function as a unified front against the Western consuming countries. Smaller OPEC producers have long ignored the quotas, battling for marketshare while comfortable in the knowledge that Saudi Arabia would lower their production to maintain price targets. The Saudis have grown tired of that role—this current salvo is as much a move against their fellow OPEC members as it is new Western production.
This current situation is the Saudi's public recognition that OPEC has failed, the final culmination of a decline that began decades ago.
Saudi Arabia is facing the prospect of increased production on several fronts for both geopolitical reasons (Iran) and technological (America, deep sea, Canadian oil sands, etc). When the US tears down export barriers, their situation will become that much more dire as American shale producers will find entire new markets for their oil. Finding markets has long been as significant a task for the industry as finding oil itself.
Other investors are certainly fearful of investing in oil but I've been moving more and more of my personal portfolio into energy over the last few months. Given time, energy will rebound.
OPEC is effectively dead.
Tar sands, deep water, synthetic fuels, coal and gas conversion, and hydraulically fractured wells have produced a few percent more lately than the plateau of total production from 2005-2011. Those methods start paying at US$70-100 a barrel. The plateau saw prices above US$100 consistently.
Demand made itself more efficient in the face of rising prices even as new expensive sources came online. Now the new sources are producing but demand has softened enough with basic efficiency measures that the new unconventional oil cannot command the high prices.
Unless things change fast, we'll see the worst of all possible effects. New oil ventures will fail and go offline. Low prices will lead to efficiency plans being cancelled. We'll have the situation of five years ago again and prices will skyrocket as demand rises and the new unconventional oil is offline.
Of course, that's exactly what OPEC and Russia are hoping for. They want new oil sources and efficiencies to go away so they can get back on the gravy train. So they're flooding the market strategically now to drive prices even lower and put new sources out of business.
Since it takes investors and technologies several years to react to changes in price, a fairly steady production could lead to accelerating resonant gyration in prices if OPEC can time it right.
It's all very exciting, but it doesn't change the reality that oil is getting harder and harder to extract. Eventually it will be too expensive to extract more.