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Crude Falls Below $30 a Barrel for the First Time in 12 Years

bloomberg.com

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Re: Crude Falls Below $30 a Barrel for the First Time in 12 Years

#11

Post by fulafel »

alkonaut wrote: post #6

How much oil can be stored by producers, and for how long? If you run an operation that gets oil out of the ground at $50, you wouldn't want to sell at $30 (you wouldn't want to take it up at all, but likely need to keep your machines running). Are there producers that sit on lots of oil now, hoping to sell at a higher price, maybe years from now?

Speculating on oil price happens mostly on paper (derivatives and other contracts). It is cheaper than paying for its storage. You can also of course stop pumping if you're fine with getting less oil out of the ground this year.

Re: Crude Falls Below $30 a Barrel for the First Time in 12 Years

#12

Post by theklub »

nissimk wrote: post #9

Yukon XL Denali here I come! Seriously though, I thought Saudi and worldwide peak oil was in 2005. Is that a myth or are prices not really constrained by supply until way past the peak?

That's hilarious my friend just bought one of those a month ago and we were harping on her about the mileage.

Re: Crude Falls Below $30 a Barrel for the First Time in 12 Years

#13

Post by jevgeni »

_Codemonkeyism wrote: post #4
rtpg wrote: post #3

is the fact that it's dropping below $30 right now mean that the previous $100+ prices were completely inflated compared to COGS? The massive fluctuations for something that you just need to pump out of the ground doesn't make too much sense to me (compared to, say, price of potatoes)

Not an expert, China economy slowed, fracking is up.

In addition to that, sanctions lifted from Iran. Iran and Saudi Arabia are the most influential members of OPEC and they don't get along whatsoever. Meaning the Saudis and the Iranians will break rank and try to claw out more market share by ramping up production.

Additionally, more in response to rtpg's comment: it is very costly and technically challenging to stop or reduce oil production, hence the price volatility is the result of volatile demand fighting it out with very stable supply.

Re: Crude Falls Below $30 a Barrel for the First Time in 12 Years

#16

Post by maxerickson »

rtpg wrote: post #3

is the fact that it's dropping below $30 right now mean that the previous $100+ prices were completely inflated compared to COGS? The massive fluctuations for something that you just need to pump out of the ground doesn't make too much sense to me (compared to, say, price of potatoes)

OPEC has recently lost effectiveness. Back in the days of $100 oil, it was at least partly successful in restraining production from member states.

Other global factors have also contributed. Fracking has really had an impact on US production:

https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=M...

Re: Crude Falls Below $30 a Barrel for the First Time in 12 Years

#18

Post by jevgeni »

nissimk wrote: post #9

Yukon XL Denali here I come! Seriously though, I thought Saudi and worldwide peak oil was in 2005. Is that a myth or are prices not really constrained by supply until way past the peak?

I think the problem is that demand for oil can change way more quickly than supply. At peak everybody was investing in production capacity and increasing production to profit from the high prices. Now demand has slipped (for example China), it's difficult to scale back production and supply exploded (fracking, and the Saudi-Iranian competition for market share).

Re: Crude Falls Below $30 a Barrel for the First Time in 12 Years

#20

Post by stonemetal »

rtpg wrote: post #3

is the fact that it's dropping below $30 right now mean that the previous $100+ prices were completely inflated compared to COGS? The massive fluctuations for something that you just need to pump out of the ground doesn't make too much sense to me (compared to, say, price of potatoes)

Yes, a barrel of oil brought up by fracking costs around $62 (Canadian oil sands cost $74) per barrel(according to NPR below). Though that is total cost, marginal cost of pumping after you drill and frack the well is around $35.

Oil demand tends to be fairly inelastic. Almost all of oil pricing is supply driven. OPEC decides on a target price and produces to meet that price. The current price has happened because Saudi usually stops producing to keep prices stable and high, and for now they just haven't slowed down at all. Either they need money badly enough that they will take any profit at all or they are using oil prices as a weapon.

http://www.npr.org/2014/11/04/361204786/falling-oil-prices-m...

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