Really, Really Cheap Oil

Forbes.com ^ | Christopher Helman

[William Tell]

Stat-boy said: "The market for oil takes time to adjust, but the fact is that the market will adjust."

Traveling through the southwest last year my wife and I were entertained by the small wells pumping merrily along almost everywhere we went.

Low yielding wells require a storage tank at the wellhead and trucks to keep the tanks empty. Pipelines are far too expensive for such wells.

These low-yielding wells are all over the place and we never saw one that was not pumping. At $10 per barrel, it probably doesn't pay to send the trucks, so such wells would stop operating. As soon as the price recovers sufficiently, the wells start up again. Every well probably has its own critical price based on storage tank size and cost to transport the oil.

[wouldntbprudent]

Also new technologies will open or re-open wells that otherwise were not profitable---

WEST BERLIN, N.J., Sept. 28 /PRNewswire-FirstCall/ -- Mobilestream Oil and Global Resource jointly announce a meeting between the companies to be held on October 11, 2006, to discuss the acquisition by Global of all technologies owned by Mobilestream Oil.

Mobilestream Oil, Inc., (OTC Pink Sheets: MSRM - News) owns a family of microwave technologies which not only allow for the complete recycling of an automobile tire (recovering all of the component parts for resale), but also permit the economic recovery of oil from sources such as shale, tar sands, oil resid and existing oil wells.

http://biz.yahoo.com/prnews/060928/clth009.html?.v=65

[William Tell]

ukie55 said: "Thanks, and I was happy with $2.49 till I read your post. Some places around here are still at $2.65. I wonder why? /s"

There is a factor keeping gasoline prices high that will kick in hard real soon, I think.

Less than five years ago, I paid $1.09 per gallon in Los Angeles. Perhaps the wholesale price was as low as $.40 per gallon. I don't really know.

But today, I have to pay about $2.65 per gallon here and the wholesale price nationwide is $1.45 per gallon.

That's a markup of $1.20 to get wholesale gasoline into my tank. That's far more than it cost five years ago.

So, what changed?

One change is inventories. At today's wholesale and retail prices, inventories are growing. As the article points out, it is possible to purchase oil and contracts which will pay one to simply store oil.

When every bucket and teacup in the US and the rest of the world is full, then things will start to change rapidly.

Locally, the discount station that I frequented for years has its pumps turned off. They haven't sold a gallon of gas in perhaps as long as a year. (Just after what was obviously a very expensive upgrade of their tanks and equipment.)

The reason that my local discount station is closed is that they can't buy gasoline at prices attractive enough to do business with their intended customer base; that is, the "super frugal" such as myself.

When the teacups start overflowing, gasoline will begin to be available to the independents again. Then stations will have to trim their margins and compete for customers.

[mysterio]

There was a glut. It was a short one, and prices have been skyrocketing ever since.

[Former Proud Canadian]

bump

[litehaus]

this will TANK chavez BIG TIME!!!

---

Citgo stations USED to have slightly Higher prices roun gere, Now, they are the lowest! Ha Ha Ha Hugo!

[shield]

Yep, after seven eleven thing and his awful visit to the USA...those stations dropped 15 cents below all others. I don't care....I'm buying my gas at the same place I've always brought it.

[thackney]

There was a glut.

It was caused by faltering Asian economy and OPEC's short sided greed that prevented them from agreeing to the larger production cuts as they had in the past. And you are right, it created a glut.

My point is they actually had more of a monopoly then as compared to now. It will happen again, maybe in a few years or will take a couple decades. But if you follow this market long enough you will realize boom/bust is fairly normal.

and prices have been skyrocketing ever since.

At least you are learning some. Back in July you said we would never see $30-35 without competition. At least now you are claiming $20.

[pabianice]

Just wait until the dilithium chamber enters the market. Oil will crash!

[BenLurkin]

I want my next car to be powered by Mr. Fusion....

[mysterio]

No, I said it will never drop to $20 until the market produces a competitor. Could it? Sure, I guess. Will it? Probably not.

[Tolerance Sucks Rocks]

If true...and I believe it could very well be true...this will TANK chavez BIG TIME!!!

Maybe some thoughtful, considerate Venezuelan will do us a favor and kill him before then.

[Jet Jaguar]

What was that? LOL!

[thackney]

Do you still believe it will not hit $30-35 without a competitor? And how much market share does that competitor need to have? (or any other way you want to measure it)

[mysterio]

It might hit $40 again, but I doubt it. The competitor would need 10%+ market share to have any impact at all. And oil will have to stay $60+ for a while before the market produces a competitor that anyone is interested in.

[thackney]

Thanks for the input. I see it hitting $30 again fairly easily but if that is in 3 years or 10 years, I wouldn't put any money on it. Oil was in the 'teens less than 5 years ago. The market and players just have not made in major changes to think that it will not happen again, in my opinion.

Oil Prices
http://tonto.eia.doe.gov/dnav/pet/hist/rwtcd.htm

[shield]

They've been trying....everytime you hear this thug blaming Bush...you know his people have tried and failed. [Per several reliable sources]

[SunkenCiv]

Oil prices poised to drop sharply, energy consultant says-(1.15/gal)
contracostatimes | Wed, Sep. 13, 2006 | Kevin G. Hall
Posted on 09/13/2006 9:56:52 PM EDT by Flavius
http://www.freerepublic.com/focus/f-news/1701085/posts

[Paul Ross]

Yeah. It is like mold!

It just won't go away...what, 5 years running now!? Nice if it ever came true...but this wishful thinking obviously has SPIN written all over it. And who benefits thereby? I can only think that this is really Kool-Aid intended for the electorate...to placate the dawning realization of immense inflation now bursting through...keeping people's wage demands static with false hopes.

Some of the finger-prints on this kind of spin point squarely right to the top of the administration...US Fed to Discontinue Publishing M3 Numbers