Posted on 12/18/2014 10:06:12 AM PST by blam
Myles Udland
December 18, 2014
Crude oil is starting to roll over.
In late morning trade, West Texas Intermediate crude oil futures were giving up earlier gains and were down more than 1% on the day. WTI futures were down near $56 a barrel on Thursday, after briefly touching $59 a barrel earlier.
On Wednesday, crude oil had a wild ride, spiking ahead of the Federal Reserve's announcement before giving up those gains.
(snip)
(Excerpt) Read more at businessinsider.com ...
Die OPEC!
Do you understand that OPEC is essentially doing nothing, because they cannot reach agreement among themselves? Most want to cut production but that takes a unanimous vote.
I see it as a good thing that they cannot effectively control the cartel and manipulate the price.
Interesting.
Agreed. I am fascinated to see what effect free market oil would have on the world economy.
Never forget what was the model for OPEC.
http://en.wikipedia.org/wiki/Railroad_Commission_of_Texas
Expansion to oil
The agency’s reach expanded as it took over responsibility for regulating oil pipelines (in 1917), oil and gas production (1919), natural gas delivery systems (1920), bus lines (1927), and trucking (1929). It grew from 12 employees in 1916 to 69 in 1930 and 566 in 1939. It does not have jurisdiction over investor owned utility companies; that falls under the jurisdiction of the Public Utility Commission of Texas.[7][8]
A crisis for the petroleum industry was created by the East Texas oil boom of the 1930s, as prices plunged to 25 cents a barrel. The traditional TRC policy of negotiating compromises failed; the governor was forced to call in the state militia to enforce order. Texas oilmen decided they preferred state to federal regulation, and wanted the TRC to give out quotas so that every producer would get higher prices and profits. Pure Oil Company opposed the first statewide oil prorationing order, which was issued by the TRC in August 1930. The order, which was intended to conserve oil resources by limiting the number of barrels drilled per day, was seen by small producers like Pure as a conspiracy between government and major companies to drive them out of business and foster monopoly in the oil industry.[7]
Ernest O. Thompson (1892-1966), head of the TRC from 1932 to 1965, took charge of the agency and indeed the oil industry by appealing to an ideal of Texas’ role in the global oil orderthe civil religion of Texas oil. He cajoled, harangued, and browbeat recalcitrant producers into compliance with the TRC’s prorationing orders. The New Deal allowed the TRC to set national oil policy.[9] As late as the 1950s the TRC controlled over 40% of United States crude production and approximately half of estimated national proved reserves. It served as a model in the creation of OPEC.[10] Gordon M. Griffin, chief engineer of the TRC during World War II, developed the formula for prorationing to keep production flowing for the military.
A couple points concerning the chart.
That is numbers for matching government spending, not the cost to produce oil.
The US hasn’t had any real reluctance to spend more than its income. I have not seen much discussion related to members of OPEC doing the same.
Dont underestimate the impact of currency exchange rates. Venezuela, Nigeria, Angola, Russia and other exporters might be getting fewer dollars for their oil, but because their currencies have been weakening so much against the dollar, in local terms their budgets arent as out of whack as all the fiscal breakeven numbers suggest.
http://www.forbes.com/sites/christopherhelman/2014/12/01/after-a-bloodbath-in-oil-what-next/3/
The Saudis are doing this on purpose. This isn’t market driven. This is economic war against the Russian/Iranian axis.
Saudi Arabia oil production is actually down from last year.
Considering the price is now below $60, this graph is something else.
This is economic war, which is always a prelude to military war. It was ever thus.
Recognize those are the average cost, during a boom time. It includes going after marginal areas of the plays that won’t be pursued with lower prices.
For an example, say a company has 10 areas where they were considering investing for new oil production. Break even cost for them are: 51, 53, 55, 57, 59, 61, 63, 65, 67, 69 $/bbl. Their average break even costs are $60/bbl.
If they just shelve the top 5 most expensive projects, they just lowered their break-even cost to $55/bbl. No technology change, but still lower average cost. They will just produce less until prices climb up.
Now combine that with less demand for equipment, material and labor as the drilling programs get scaled back. The producers cost for new production then fall even lower.
Goodbye gold toilet seats.
Boaters all over the USA are cheering.
Just ordered a new pontoon...
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