Posted on 10/16/2014 4:21:33 AM PDT by thackney
Crude oil prices continue to slide with surging production and weakening economic news. Key benchmarks are near to at a four year low, with West Texas Intermediate (“WTI”) closing at $81.84, well below the $100 to $120 range reached between 2010 and 2012.
In fact, the drops have been startling, with WTI closing down $3.90, or 4.77% today alone, and other key benchmarks have not fared better. Until recently, Brent Crude Oil has traded significantly higher than WTI. Surging production and better transportation options have significantly whittled away at the typical $10 to $20 per barrel spread over the last several years. Today for example, Brent closed down $3.85 or 4.53% at $85.04.
While price drops are not unusual during periods of weak demand; this time however, it presents an interesting turn from decades of dependency on the political climate in the Middle East.
Historical pricing has been affected by, and dependent upon, turmoil facing the Middle East. In times of war and geopolitical instability, prices have historically increased rather quickly, often overnight. As turmoil eased, so too would oil and gas prices, albeit at a much slower pace.
Based on historical data, one would expect prices to be dramatically spiking given current events in Syria, Iraq and Libya, yet for all of this instability, prices continue to drop. This, in turn, directly translates into lower gasoline costs for drivers at the pump, with many drivers experiencing unleaded gasoline below $3.00 a gallon.
The drop in price may appear to some as an indication of a weakening market due to conservation, renewables, and weaker economic data. While partially true, the decline also validates the strength of the domestic energy market. While the U.S. is still dependent upon imports, surging U.S. production means the country imports far less than it has...
(Excerpt) Read more at forbes.com ...
Darn, bummer.
Look on the bright side.
We have OBOLACARE.
OBOLACARE: If you like your Ebola and piles of vomit, you can keep your OBOLACARE.
Brought to you by the government that cares.
However low they go, won’t matter to us.
I expect most states will jump on the opportunity to take a page out of Tom Corbett’s playbook and slap a big tax on gasoline to replenish their coffers.
I filled up last Thursday at $2.94. I noticed on Tuesday it had dropped to $2.91.
Those are the lowest prices in over a year.
A year ago, the prices were in the $3.06 range and eventually reached the $3.30 range.
Old article, more like 40 now with latest equipment and good geology. But some companies with lots of debt might go under as margins will be thinner.
I think the savings in cost would be a very small sliver of the loss in profit.
U.S. shale producers could keep pumping oil economically even if Brent dropped to $60 a barrel, Bjornar Tonhaugen, an analyst with Oslo-based Rystad Energy, said in an e-mailed report. Brent would need to remain at $50 a barrel for 12 months before North American shale output drops 500,000 barrels a day, he said.
Morgan Stanley said Eagle Ford break-even costs range from $30 to $60 a barrel. Most U.S. tight-oil reserves break even from $60 to $80, Barclays Plc (BARC) said in slides presented at the Argus European Crude Conference in Geneva last week.
“We continue to be impressed by how much operators are improving their operations,” R.T. Dukes, an upstream analyst for Wood Mackenzie Ltd. in Houston, said by phone. “There’s enough out there that significant development would continue even at $75 or $80.”
Lag Time
If West Texas Intermediate, the U.S. benchmark, fell to $80 or less for an extended time, drilling activity in U.S. tight oil plays would decrease, RBC Capital Markets said in a note today. WTI fell to $81.84 today on the New York Mercantile Exchange, the lowest since June 28, 2012.
There will be a lag time between falling prices and any drop in drilling activity, Jurecky said. When oil prices dropped by $111 a barrel between July and December 2008, the oil rig count didn’t begin to decline until November, according to data from oil services provider Baker Hughes Inc. (BHI)
http://www.bloomberg.com/news/2014-10-14/u-s-shale-oil-output-growing-even-as-prices-drop-eia.html
I also read an interesting article about how the process of converting natural gas into gasoline and diesel has been worked out. It requires coal, but I can’t see the US running out of natural gas or coal in the next few hundred years. The conversion process using natural gas would be cheaper than shale production.
Sasol and Shell have commercial sized facilities doing this.
It requires coal
I have not seen that.
The conversion process using natural gas would be cheaper than shale production.
Not what I have seen. Shell has commercial Gas-To-Liquids in Malaysia and Qatar. They recently canceled plans to build in the US, while they are investing in US Shale production.
http://www.shell.com/global/future-energy/natural-gas/gtl.html
Guess I was wrong on the price that squeezes the domestic shale producers, as Thackney & others here have said it is more like $55-$65. that would put a hurtin’ on them.
http://www.cnbc.com/id/102094881
Keep in mind, there is no one cut off, just an average.
$90 will produce less $100
$80 will produce less $90
$70 will produce less $80
$60 will produce less $70
etc...
The marginal locations will go away first, the sweetspots will hold on towards the end.
First time I've seen gas that low since Obama got elected.
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