The implications of extended low oil prices

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xraymike79's picture
xraymike79
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The implications of extended low oil prices

Bahrain needs to fetch $75 a barrel for its oil.
 
Saudi Arabia needs $49 a barrel.
 
U.A.E. just $23 a barrel. 
The marginal cost for oil production in Venezuela and Iran is said to be $70 per barrel. 
Russia's state budget remains balanced only when oil prices stay at or above $70 per barrel. 
Of the new extraction projects planned by state-owned companies in deep-sea areas, the lowest break-even oil price was about $60 a barrel and the highest about $90 per barrel. 
Deep water oil drilling like in the Gulf of Mexico (where we get 25% of domestic production) is around 95 per barrel. 
So as we all know, price below production cost causes destruction in future projects and supply. Matt Simmons has recently pointed this out as well. 
One thing that will cause the next spike in oil will be the prolonged depressed price of the number one commodity of the world. The global political turmoil this will create could very well bring down countries.
* Anders Åslund, senior fellow at the Peterson Institute for International Economics and author of Russia’s Capitalist Revolution and How Ukraine Became a Market Economy and Democracy, predicts that if oil does not rebound to $75 per barrel in 2009, Putin may fall.
* Looking a little further down the road, the World Bank predicts that Yemen's oil and gas revenues will plummet over the next two years and fall to zero by 2017 as supplies run out.... a failed state in Yemen could threaten stability across the region. It says it could open the way to piracy, smuggling and a flourishing jihad with implications for the security of shipping routes and the transit of oil through the Suez Canal.
* Mexico will have big problems as well since 40% of their government budget, which funds school, hospitals, and other social programs, comes from their oil production. Mexico, one of the USA's key suppliers, has seen its huge Cantarell field peak and rapidly decline, despite enhanced recovery techniques. Mexico’s one great oil field, Cantarell, once the world’s second largest, is now producing 902,000 barrels per day according to data released byPemex, the state-run oil company. That is down from 2,900,000 barrels per day in 2003. That is a devastating 69% decline in just five years. The EIA projects Mexico will become a net oil importer by 2017 – a shocking reversal for a nation that currently exports about 50% of its oil. 
"Overall, threats to Mexico’s stability abound and will be exacerbated by declining oil revenues and a concomitant decline in government entitlement programs. It is well known that drug cartel activity continues to spiral out of control in Mexico, especially in the border cities of Tijuana and Juárez. The ability to confront the cartels depends on the financial foundation of oil revenues. Further, the country has recently experienced large oil reform protests, deadly worker strikes, violent demonstrations against corn price increases, and numerous pipeline attacks. Mexico’s full democracy, after only eight years, may face a bumpy road indeed.

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xraymike79
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Re: The implications of extended low oil prices


 I forgot to mention the marginal cost for oil sands: 75-100 per barrel. 

 

Alberta oil sands facing a new enemy

 

Financial crisis forces a corporate retreat from oil sands; billions of dollars of planned investment now on the shelf; Alberta government urged to rethink royalties; long-term impact on planned projects uncertain, but immediate impact is severe

Gary Park

For Petroleum News

Shifting sands The oil sands of Alberta are living proof of the old adage: The bigger they are the harder they fall. Even faster than they grew from a marginal resource to a key element in North America’s energy future, attracting capital spending estimates of C$317 billion over the next 22 years, the oil sands have gone into a tailspin, induced by the collapse of oil prices that did more damage in a few months than years of cost over-runs, shortages of construction labor and materials and the threat of harsh climate-change measures. 

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POTUS
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Re: The implications of extended low oil prices

RE: Kanuckistan’s Oil Sands

Stephen “Mugabe” Harper’s Halloween 2006 massacre of the Trusts is looking dumber and dumber with each passing day.

He and the Morans in the Alberta parliament have killed and cooked the goose that was just beginning to lay golden eggs for the Kanuckistani people, Eh?

Panic by "Mugabe" man and greed by the Morans.

Net effect? The whole mess is going straight down the gurgler! 

Let us hope that future world leaders will take pause from all this when they start thinking of taxing Big Earl more. Big Earl doesn't need more taxes!

So says POTUS. 

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Mike Pilat
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Re: The implications of extended low oil prices

Don't have much time now, but here is an excellent report that came out late last summer that showed the (then) marginal cost curve, etc. for crude oil. Very interesting to look at for those interested in trading and determining what the price "should be" http://www.clingendael.nl/publications/2008/20080700_ciep_energy_jesse.pdf

enjoy

Mike

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tonguefu
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Re: The implications of extended low oil prices

hi there, I am in Canada and in the 'have all' province named Alberta. I have many friends and associates in the oil business here and most of them are in the tar sands, last word we had was the cost per barrel was about $83.45. A lot of the guys I know werent called back after the Christmas break and most of them up there have heard they wont be continuing with projects.

 

Interesting times!

 

Cheers

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RubberRims
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Re: The implications of extended low oil prices

 

Did anyone not see this coming. http://www.cbsnews.com/stories/2006/01/20/60minutes/main1225184.shtml 

A Wall St. cabal controls oil markets that Enron set up to manipulate prices. There is a little more but not much.. Investor demand or a group of crooks in the futures market? All the above.

http://wallstnation.com/DBO_01132009.html

What implications are we talking about here if oil is set at a consistent and fair price? As the current price is a true reflection of market value.

 

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Damnthematrix
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Re: The implications of extended low oil prices

I may be wrong of course RR.....  but to me you don't seem to understand the implications of Peak Oil.

Just what do you consider is a  "consistent and fair price" post peak?  Which we have now almost certainly passed?

BTW, Wall Street does NOT control the price of oil, a common misconception.  The 'majors' (Exxon, BP, Shell etc) only control oil flows in Nth America and Europe.  The rest of the oil is controlled by companies that are STATE owned, like Saudi Aramco and Gazprom and Pemex just to name a few....  even then, they don't control the price, otherwise it would still be high.  Even reducing production substantially has not raised the price for very long.

The way I see it, the oil price is only this low because the economy is in deep doodoos.

With oil this low, I'm predicting shortages this year.  Watch this space.

Mike 

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Mike Pilat
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Re: The implications of extended low oil prices

Yes, we are rapidly switching to a world where nationalized oil companies utterly dominate the petro landscape. There, we will truly see oil linked to national interests and strategy and that will make oil a lot more politicized than it has ever been.

Given that, I'm sure we'll see a hard rise in the crude price in the coming few years, but I wonder when there will be some sort of price controls or other interventions in this area. A resource as significant as oil is absolutely not one that the politicians will leave alone for too long. When things start getting painful, I think we're not simply going to see a market response, but also a LOT more intervening. If the markets still have some freedom at that point, I think it's obvious that the price will respond poorly to interventions as indicate further political risks emerging.

In the medium / long run, the price of oil is uninmportant. All that matters is the amount of oil each person has, the import / export balance, and the ease (in energy terms) of extracting the remaining oil.

Mike

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Damnthematrix
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Re: The implications of extended low oil prices
Mike Pilat wrote:

In the medium / long run, the price of oil is uninmportant. All that matters is the amount of oil each person has, the import / export balance, and the ease (in energy terms) of extracting the remaining oil.

Mike, you left out "how the oil is used".

Driving the SUV to the corner store to pick up a DVD MUST become a thing of the past.

From here on, every drop should only be used for essential matters of survival, and I don't mean fighting wars to dominate the supply either.

Mike 

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