If you have to rely on something continually rising in price than that is essentially a Ponzi (and a bubble).
It’s the continually falling that has caused a problem, not just with shale but with higher cost producers the world over. Russia, Venezuela, quite a few. There is a cost to get it out of the ground that varies. Saudi is the cheapest. By that measure, all oil but Saudi oil is a Ponzi Scheme. Obviously that’s not correct. The lowest cost producer is driving competition out of business by intentionally flooding the market, is what’s happening.
The wells are drilled it is money in the groundâ¦the stronger will buy out the weakerâ¦.The Saudis could go bell up
Shale oil requires a certain price level to warrant drilling. That level is much lower than it was a decade ago, by the way.
But once the well is drilled, its drilled. Drop the price all you want, the well keeps on producing.
New shale oil helped drive down prices, which was a good thing. Decisions by the Saudis also helped, and Iranian oil coming into the market will weaken prices more. So there won’t be many new wells drilled for a while. But as soon as the market tightens up a bit, they’ll be back. They know right where the oil is, they don’t have to go looking for it, which helps to keep the “go” price down.
If they can get a better pipeline network built, the “go” price gets even lower. In the long term, this is very good for us.
By the way, this is normal in the oil business. In the late nineties oil dropped to $8 bucks a barrel. There was blood in the streets in some producing countries. It always comes back up. And it always goes back down again though, thankfully, not back down to $8.