“...being produced at a loss...”
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How does this make any sense for them?
Because it would cost them more to shutdown in the long run.
http://www.energytrendsinsider.com/2015/08/20/why-the-20-oil-predictions-are-wrong/
the price won’t stay there because that is well below the marginal cost of production at the current level of world demand....
U.S. crude oil production is now falling...
investments into shale oil production dried up as the price of crude oil fell below $60/bbl. Companies aren’t interested in putting new capital to work, and because these oil fields deplete, that means crude production is falling....
Over just the past decade global oil consumption increased by an average of 900,000 bpd each year, and consumption has risen in 18 of the past 20 years. If we look back 30 years, global oil consumption increased by an average of 1.1 million bpd annually....
Global demand growth for crude oil is projected to continue....
This week Algeria wrote a letter to OPEC questioning the wisdom of their current strategy. The letter asked OPEC to consider taking some form of action to bolster oil prices, as many OPEC countries need oil prices to be at least $100/bbl to balance their budgets. CNN recently reported that this year Saudi Arabia alone has burned through $62 billion of its cash reserves. By my calculations, the steep slide in the price of oil has cost Saudi Arabia around $200 billion in the past year....
Longer term, irrational markets return to pricing based on fundamental factors like the cost to produce something and make a profit. In the long run, $40/bbl oil is not a price sufficient to entice enough oil producers to produce at a level that can satisfy global demand. Hence, prices will rise.
“How does this make any sense for them?”
ever own any stock? Is it up every single day or does sometimes it goes down?
If you sell every time it goes down, you are guaranteed to lose, and lose bigtime.
A company works the same way, short time losses no big deal, just be smart on looking to see if that is a long-term loss situation.