Great Article on Oil Prices

[legion]

Saudis risk playing with fire in shale-price showdown as crude crashes - Telegraph

I found these bits particularly interesting:

Opec has misjudged the threat. As late as last year, it was dismissing US shale as a flash in the pan. Abdalla El-Badri, the group’s secretary-general, still insists that half of all US shale output is vulnerable below $85.

This is bravado. US producers have locked in higher prices through derivatives contracts. Noble Energy and Devon Energy have both hedged over three-quarters of their output for 2015.

Pioneer Natural Resources said it has options through 2016 covering two- thirds of its likely production. “We can produce down to $50 a barrel,” said Harold Hamm, from Continental Resources. The International Energy Agency said most of North Dakota’s vast Bakken field “remains profitable at or below $42 per barrel. The break-even price in McKenzie County, the most productive county in the state, is only $28 per barrel.”

Efficiency is improving and drillers are switching to lower-cost spots, confronting Opec with a moving target. “The (price) floor is falling and may not be nearly as firm as the Saudi view assumes,” said Citigroup.

In the meantime, oil below $70 is already playing havoc with budgets across the global petro-nexus. The fiscal break-even cost is $161 for Venezuela, $160 for Yemen, $132 for Algeria, $131 for Iran, $126 for Nigeria, and $125 for Bahrain, $111 for Iraq, and $105 for Russia, and even $98 for Saudi Arabia itself, according to Citigroup.

[widgeon13]

What's this mean for the likes of Chevron and Exxon?

[widebody911]

Even if we can produce cheep oil for a while, what do we have in terms of capacity? How long can we produce? From what I understand, the Middle East is sitting on oceans of the stuff.

[legion]

It sounds like the constraint in the middle east is budget dependence on oil revenue. So while they can profitably produce at low prices, their national budgets cannot tolerate it for long.

[sammyg2]

Originally Posted by widebody911

Even if we can produce cheep oil for a while, what do we have in terms of capacity? How long can we produce? From what I understand, the Middle East is sitting on oceans of the stuff.

If you count the shale oil under the rockys, we have roughly 6 times as much as the ME.

We can go another 250 years or so at least.

[sammyg2]

Remembering back to econ 101, there's a lesson to be learned here kiddies:

When the balance of supply and demand is artificially disrupted by a monopoly on the supply, the price is artificially supported. but those supports are weak and the system by design attacks them.

If the OPEC'ers hadn't gotten greedy and had kept the price under $80/bbl, their monopoly would most likely still be intact.

But because they propped it up too high, it created opportunity for alternative supply to be developed which not only will drive the price down to equalibrium but well below that point.

WHICH IS WHY A FREE MARKET SOCIETY BASED ON SUPPLY AND DEMAND IS SO GREAT AND SO STRONG.

It is self-regulating and self-correcting. It heals itself from whithin, IF the gubmint can keep from medling with it.

[sammyg2]

Originally Posted by widgeon13

What's this mean for the likes of Chevron and Exxon?

It means the product they produce will be worth substantially less at least for the short run.
Their revenues will drop, their profits will drop, they'll cut costs and get leaner and will survive but with stock prices cut in half.
But they'll survive.

Look for attempts to create more giant mergers (which I am strongly against).

[Instrument 41]

Here in the Tuscaloosa Shell drilling is still strong. EnCana, Comstok, Goodrich and Halcon are still moving ahead. Still a number of permits being approved and holes going in the ground. This report is really got fractionation in its sights.

[stomachmonkey]

Originally Posted by sammyg2

If you count the shale oil under the rockys, we have roughly 6 times as much as the ME.

We can go another 250 years or so at least.

So how much does the ME have left?

40-50 years worth?

Hope they have an economic plan they are working on cause that does not sound like a lot of time to build infrastructure that will replace that revenue when the pumps go dry.

[tadink]

There is something fundamentally wrong in this quote I think -

>>In the meantime, oil below $70 is already playing havoc with budgets across the global petro-nexus. The fiscal break-even cost is $161 for Venezuela, $160 for Yemen, $132 for Algeria, $131 for Iran, $126 for Nigeria, and $125 for Bahrain, $111 for Iraq, and $105 for Russia, and even $98 for Saudi Arabia itself, according to Citigroup. <<

How on earth could those be 'break even prices' for the countries listed? What is included in that costing spreadsheet???

td

[tadink]

And, while we are at it - does anyone have figures handy on the 'delivered, fully-amortized-pipeline cost of CRUDE' via the Keystone Pipeline? We've heard political hand waving of 'oil independence' if that gets built - but I'm not understanding the economics of it all in the global context....

[Neilk]

Originally Posted by tadink

There is something fundamentally wrong in this quote I think -

>>In the meantime, oil below $70 is already playing havoc with budgets across the global petro-nexus. The fiscal break-even cost is $161 for Venezuela, $160 for Yemen, $132 for Algeria, $131 for Iran, $126 for Nigeria, and $125 for Bahrain, $111 for Iraq, and $105 for Russia, and even $98 for Saudi Arabia itself, according to Citigroup. <<

How on earth could those be 'break even prices' for the countries listed? What is included in that costing spreadsheet???

td

I was a little confused about that, but I think they are referring to what the price of oil has to be in order for the government budgets to run at break-even. If it is lower, then they have to run a deficit.

It's a scary to think what might happen to some ME governments if they get toppled. What will replace them? Will the replacements be even more radical?

[NY65912]

Net result, less Lambos in the UAE.

[David]

I'm sure nobody in Washington is this smart (or able to keep a secret), but you have to wonder if someone in DC didn't call their buddies in Saudi and ask them to do us a favor by keeping up production to cause the Russian economy to tank. And of course blame their production on screwing the US. Stranger things have happening.

[Tilikum Turbo]

The Saudi's are playing a brilliant game of Chess...watch this play out over the next 3-5 years to their benefit.

[GWN7]

Originally Posted by tadink

There is something fundamentally wrong in this quote I think -

>>In the meantime, oil below $70 is already playing havoc with budgets across the global petro-nexus. The fiscal break-even cost is $161 for Venezuela, $160 for Yemen, $132 for Algeria, $131 for Iran, $126 for Nigeria, and $125 for Bahrain, $111 for Iraq, and $105 for Russia, and even $98 for Saudi Arabia itself, according to Citigroup. <<

How on earth could those be 'break even prices' for the countries listed? What is included in that costing spreadsheet???

td

The numbers are very suspect when the cost of 1 L of gasoline in Venezuela is given as $0.01 L

Venezuela gasoline prices, 01-Dec-2014 | GlobalPetrolPrices.com

[BRPORSCHE]

I took this photo about three hrs ago. Plenty of drilling still in the works. Common consensus with operation geologists is to just sock a few more dollars away each month until this blows over.

[BE911SC]

Originally Posted by David

I'm sure nobody in Washington is this smart (or able to keep a secret), but you have to wonder if someone in DC didn't call their buddies in Saudi and ask them to do us a favor by keeping up production to cause the Russian economy to tank. And of course blame their production on screwing the US. Stranger things have happening.

The people in Washington who would make such a decision, such a request, are not politicians. Call it the shadow government if you want to but some things have to be kept out of the hands of politicians.

A few years ago when oil went past 100/bbl. and then kept going past 120, the (U.S.) airline execs e-mailed D.C. and said 117/bbl. was the point above which the industry was not sustainable. Prices peaked and then went back down. The guy who first bid oil past 100/bbl. said he had done so simply because he wanted to be the guy who pushed oil past 100 dollars. Remember that when you're at the pumps next time.

[Brando]

I fail to see how this is bad. Locally refined oil cheaper than importing? That's good for us. This reduction in price should help Cost-of-Living across the US. Good