Here Is A Super-Simple Way Of Seeing Who Gets Screwed The Most As Oil Tumbles

Business Insider ^ | 12/11/2014 | Myles Udland

[saleman]

I guess. It’s not like you take the oil off the market. Anything is worth exactly what someone will buy it for. If company “A” is willing to sell their oil at a loss maybe company “B” says no thanks. So six mo’s later then oil is up 20 bucks company “B” says O.K.

I realize that it is more complicated than that. Isn’t most oil sold as futures anyway? What’s up with the companies, say Southwest airlines, that bought gas at $3.oo gallon a year ago? They’re pretty much stuck aren’t they?

[lepton]

The horizontal is how much can be produced at that price, in billions of barrels.

[thackney]

We need our Government sometimes to form protections for our industries

NO! Just as in previous down turns, our oil production industry will survive. Prices down at $35/barrel in 2009 didn't keep our industry from climbing to the production rates of today.

A Congressional moratorium on crude imports below the domestic break even point which is about $35 a barrel will allow Americans to enjoy cheap gas and oil as well as protect the nascent oil drilling industry and all the jobs that go with it.

Thank you for choosing a number for the discussion. So if oil drops down to $30 a barrel (highly doubtful), you want Valero to be forced to pay $35 a barrel to Venezuela to keep their refineries running at capacity?

Do you understand there is not one price of oil, even in the same location? Different qualities of have different prices. Even the same refinery will buy oil at different prices to create a blend of the quality they produce most efficiently at.

This government action is supportable by conservatives because it benefits all Americans

I can tell you don't work in a refinery. Raising our domestic cost of refining above those in other countries will cost jobs.

[thackney]

You are right that paying for hedges against a rising price market hurts you in a falling price market.

The financial side of the oil market is far more complicated than the actual exploration, production, transportation, refining, etc of the oil industry. At least from my point of view.

The financial side has far too many variables than can make a large impact in a short time, as we have seen the last 6 months.

[thackney]

This article makes a decent discussion of what you suggest.

http://www.businessweek.com/articles/2014-09-17/what-is-contango-cheap-oil-makes-for-expensive-tankers

The challenge is the confidence of when a higher prices will return, versus the cost of storage for that duration.

If prices continue to fall longer than the company can hold out (spending money for production without receiving revenue for sales, while spending more for storage) they are even worse off.

[Iron head mike]

“We the people will get screwed in the end because the ruling class sees an opportunity in lower gas prices they just will not be able to resist, higher taxes.
Just watch.”
Jerry brown is way ahead of you.

[Ghost of SVR4]

Side band question for you.
How/where is “oil” stored previous to either shipment or refinement? I assume very large facilities; but my other (ignorant) question is how much can be “stockpiled” during this price war (of sorts)? Are there ways to keep the wells producing and simply sitting on the product before it is actually “used”?
(I know nothing about this field, learning as I go.)

[for-q-clinton]

Nah...because I’m not sure what you’re saying is accurate.

[for-q-clinton]

Correct. If production of oil via fracking costs too much to continue in that well they have to cap it.

[thackney]

How/where is “oil” stored previous to either shipment or refinement?

Many terminals where oil is brought in or out of pipelines have storage, sometimes immense storage like we find in the greater Cushing, Oklahoma area. Houston Ship Channel is significant as well.

The shippers need some flexibility as “in” doesn't always perfectly match “out”. This is done at production facilities as well as refineries.

See the tanks at:
https://www.google.com/maps/place/Houston+Ship+Channel,+Texas/@29.7325788,-95.1619858,5624m/data=!3m1!1e3!4m2!3m1!1s0x8640bc46cf2551bb:0x387ad8779a55e640

Are there ways to keep the wells producing and simply sitting on the product before it is actually “used”?

It is a matter of cost, up to a limit of course. I thought I read in previous articles about ~$1/barrel/month but I may have that way off.

[thackney]

Hydraulic Fracturing 101
http://www.halliburton.com/public/projects/pubsdata/hydraulic_fracturing/fracturing_101.html

It doesn’t add pressure after the hydro frac fluid is removed.

And the hydro frac fluid is removed before production begins.

[thackney]

If production of oil via fracking costs too much to continue

Hydraulic Fracturing is completed before production begins.

[Ozark Tom]

Saudi social spending is partly importing food staples to the countries of OPEC and neighbors. Saudi has supported Egypt with money for food in the not to distant past. The countries adjacent have vastly outgrown their native agricultural carrying capacity, and are ripe for a famine driven revolution. The behavior of ISIS regarding farmers increases the trend toward sparking a famine crisis.

[for-q-clinton]

Right. And what happens when you cap the well? Where does the oil/gas go? You can just frack it again later, right?

[thackney]

Where does the oil/gas go?

It stays behind the wall that plugs up, no different than the vertical wells.

You can just frack it again later, right?

Yes, you can stop the current cash flow and spend several millions of dollars later. If you want to throw away money...

[for-q-clinton]

So the article was correct. Unlike traditional wells where you lose oil production. Losing millions to make billions... That’s the option.

[thackney]

Do you understand when the articles talk about break-even cost for shale, that is the cost to find, drill, frac, tie in, the begin producing.

For wells already in service, 80~90% of the cost is already spent. Until years in the future where the water cut gets to high, the cost of operation is relatively low.

[thackney]

So the article was correct.

No.

Unlike traditional wells where you lose oil production.

No, you lose production the same way in both types. The oil doesn't "go away", the economics to get it producing again cannot be justified.

[thackney]

Please go back and read Smokin’ Joe’s post. There are problems trying to refrac.

http://www.freerepublic.com/focus/chat/3233396/posts?page=102#102

[TurboZamboni]

hide the decline !