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

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

#21

Post by shoo »

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)

there's probably a few things going on:

1. strategic decisions to keep the price low (in some cases below the cost of production) to make it uneconomic for competitors to invest in oil projects

2. time lags in the system. e.g. the global economy went into recession the last time the oil price spiked. that'd reduce oil demand in some cases. now as prices are much lower again we might expect demand to keep growing until supply isn't able to satisfy demand (again), then the price will spike again

3. (long term trend) oil is becoming genuinely more costly (in physical terms - i.e. required energy) to extract as we deplete the low hanging fruit. i guess this makes it much harder / impossible for supply to ramp up and satisfy demand in a short enough time period before another recession is triggered. this isn't necessarily a problem in itself but perhaps it influences the behaviour in item 2

This is probably only semi-coherent. I read the "limits to growth" book a couple of weeks ago, and one of the claims there (from a system dynamics perspective) was roughly that any system that combines both delays in feedback and erodible limits is expected to either behave like "overshoot and oscillation" or "overshoot and collapse".

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

#22

Post by andys627 »

stonemetal wrote: post #20
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 Sau…

I don't understand the "they need the money argument". They were producing 9 million barrels per day and that achieved a price of $100 per barrel... now they are producing 10.5 million barrels per day and price is <$30 per barrel.

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

#23

Post by ck2 »

So is Saudi Arabia going to (also) become a terrorist factory once they have to cut all the massive handouts they do and implement heavy austerity?

I mean the amount of income in the middle-east is going to severely drop over the next few years - the wealthy won't be affected, just annoyed but the people who have to work for a living are going to be out of jobs, starving and homeless and extreme belief systems often jump in to fill that void.

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

#24

Post by cdnsteve »

sambeau wrote: post #14

It's worth pointing out that this is still before Iran comes online. Once that happens (possibly in a few days) prices could fall further.

There's also major political tensions with the Saudi's and Iran. Some have predicted that if a war were to break out oil would rush back to $100 per barrel. Also, Iran must first past nuclear inspections before they are able to lift the ban.

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

#25

Post by wingsonfire »

Countries that export crude are having recession.. To name few Canada, Russia, Brazil, Nigeria, Venezuela, Australia (commodities not just crude), at the same countries like India who import and depend heavily on crude are having good times (relatively).

So finally is it crude that runs all economies and everything else is overrated.. That scenario if true is so scary!

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

#26

Post by theguywith »

_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.

Yup. That's my outlook on this too.

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

#27

Post by joakleaf »

alkonaut wrote: post #7
s_kilk wrote: post #2

Anyone who knows this stuff care to explain what the consequences of this are likely to be?

Domestic political turmoil in the countries whose budget depend largely on the oil price: See e.g. election upset in Venezuela, Russia aggressive in middle east potentially to overshadow news of worsened economy at home, Turmoil in Nigeria etc). Internationally it means states like Russia won't have the same economical and political clout they had at $100+, so instead will rely on other means to throw their weight ar…

Economically not all good.

Oil companies depending on higher prices (most of them), will start having to reduce number on employees, or, worst case, go bankrupt and take financial institutions with them (because of debt).

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

#28

Post by aianus »

fulafel wrote: post #11
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.

> Speculating on oil price happens mostly on paper (derivatives and other contracts). It is cheaper than paying for its storage.

Speculating using futures is the (roughly) the same marginal cost as speculating by storing it in tankers and storage depots.

Otherwise there would be an arbitrage opportunity where you could empty your tanks today, save the storage costs, and get the same quantity back x months in the future.

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

#29

Post by celticninja »

andys627 wrote: post #22
stonemetal wrote: post #20

Earlier quoted context omitted.

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 Sau…

I don't understand the "they need the money argument". They were producing 9 million barrels per day and that achieved a price of $100 per barrel... now they are producing 10.5 million barrels per day and price is <$30 per barrel.

other nations have increased supply whilst demand has fallen at the same time, therefore to sell the extra oil being produced prices have to fall.

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

#30

Post by simonz05 »

andys627 wrote: post #22
stonemetal wrote: post #20

Earlier quoted context omitted.

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 Sau…

I don't understand the "they need the money argument". They were producing 9 million barrels per day and that achieved a price of $100 per barrel... now they are producing 10.5 million barrels per day and price is <$30 per barrel.

If the future outlook for oil prices are lower than what they sell at today — it makes sense to produce as much as you can today.
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