1973 all over again?

Look like the oil speculators/traders are tring to influance the market by holding back oil!

Oil Traders Stockpiling Oil at Sea Amid Glut - gCaptain Maritime & Offshore News

I wonder what the cost of extracting, refining and distributing a barrel of crude is. It would seem the retail price would bottom out somewhere above that.

I've heard wispers that the glut in oil is not because of fracking, but the full scale production of oil from Irag coming online. Of course the Iraqi government has to pay back the US for the cost of the war, plus large government infrastructure loans; all paid in oil because that's the only asset Iraq has got.

Makes sense when you think about it; how could fracking produce so much gas that it depresses the oil price by 50%???

Rustybarge said:

I've heard wispers that the glut in oil is not because of fracking, but the full scale production of oil from Irag coming online. Of course the Iraqi government has to pay back the US for the cost of the war, plus large government infrastructure loans; all paid in oil because that's the only asset Iraq has got.

Makes sense when you think about it; how could fracking produce so much gas that it depresses the oil price by 50%???

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Ignore those whispers. This is not a US led conspiracy. Nothing more complicated than good old Yankee ingenuity, And yes, natural gas and LNG are in a glut situation.

Who is really suffering here? Russia number 1. Such a pity.

Fracking is not just for gas wells. It is used for oil wells also.

It's actually Saudi Arabia that opening up the spigots and flooding the market with oil. Their lifting cost is the lowest in the world at $18-23/barrel, compared to around $50 for fracted US/Canadian oil. They get a 3fer out of this - kills the economy of two of their foes - Iran and Russia, and throttles a new competitor, the US.

sunchaser said:

Ignore those whispers. This is not a US led conspiracy. Nothing more complicated than good old Yankee ingenuity, And yes, natural gas and LNG are in a glut situation.

Who is really suffering here? Russia number 1. Such a pity.

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The fall in the crude price is so unexpected that the uk government has just signed a deal with France to build a new nuclear power station at more double this years energy price; they expected oil to be at $220 in 2025.....!

It's all looking great for manufactures.

FoxtrotCharlie said:

It's actually Saudi Arabia that opening up the spigots and flooding the market with oil. Their lifting cost is the lowest in the world at $18-23/barrel, compared to around $50 for fracted US/Canadian oil. They get a 3fer out of this - kills the economy of two of their foes - Iran and Russia, and throttles a new competitor, the US.

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Not to forget, many of Russia's friends in the Middle east are Saudi Arabia's enemies. On this issue I give Obama a for heeding expert advice to push economic sanctions earlier this year and getting Saudi Arabia to go along. As some may recall Merkle was not anxious to do this as they get so much gas and oil energy from Russia. They were convinced by US that cheap energy was coming, and boy has it. So much for Russian blackmail.

FoxtrotCharlie said:

It's actually Saudi Arabia that opening up the spigots and flooding the market with oil. Their lifting cost is the lowest in the world at $18-23/barrel, compared to around $50 for fracted US/Canadian oil. They get a 3fer out of this - kills the economy of two of their foes - Iran and Russia, and throttles a new competitor, the US.

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Not so fast. This came out of North Dakota this morning compliments of Seeking Alpha:

• [FONT=&quot]North Dakota needs an oil price of $55/bbl and a fleet of at least 140 rigs to sustain production at the current level of 1.2M bbl/day, according to a presentation from the state's chief mineral resources regulator.[/FONT]
• [FONT=&quot]Breakeven rates for new wells range from $29 in Dunn county and $30 in McKenzie to $36 in Williams and $41 in Mountrail; these four counties account for 90% of drilling in the state.[/FONT]
• [FONT=&quot]The number of rigs operating in the state already has fallen to 165, down from 191 in October.[/FONT]
• [FONT=&quot]The projections confirm North Dakota's oil output will start to fall by year's end unless prices rise from current depressed levels.[/FONT]

I was real surprised to see those numbers.

U.S. shale oil will be the "governor" of oil prices. If it goes too high, production picks up. Goes too low, pumps shut down. If the price is reasonable, burn Saudis oil and keep ours in reserve. Just keep the price low enough to keep Russia in check.

Saudi Arabia is doing a pretty good job in collapsing Alberta's oil production as well as the US's. At these prices, it's not worth getting the stuff out of the ground.
If the plan was to punish Russia, it's a big fail.


You can look forward to major layoffs in the oil industry here in North America, it's already happening in Alberta and other parts. Lots of companies going under.

I'll say I don't really know why prices are so low. I've heard many different explanations and have not looked into any of them to have an educated opinion. With that said, it seems to me that ultimately its a market at work. Somewhere someone can do it cheaper and prices drop. Those that can compete do, and those that can't don't stay in business. It happens in any industry. Are these prices here to stay? I don't know, but I would guess not.

Till I see a downside, I'll be happy keeping my tanks topped of.

Oh, it's a "market" at work. It is what happens when one entity can control the world "market"with the wave of their hand. And that hand belongs to the rulers of Saudi Arabia. The USA should have pulled out of Vietnam in '73 and Blitzkrieged Saudi in '74. Time to call Vladimir Putin and agree to divide up the Middle East after the Russian and American War Machines grind the inhabitants to hamburger.

sunchaser said:

Who is really suffering here? Russia number 1. Such a pity.

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Pretty sure Putin's the target here. (Russia recently cancelled a 40 billion dollar pipeline project to Europe). http://www.nytimes.com/2014/12/31/w...n-region&region=top-news&WT.nav=top-news&_r=1

Here's a prediction: Canada's Prime Minister Harper has all but given up on exporting Alberta's diluted bitumen from ports in British Columbia, and will soon start pushing for the Energy East pipeline so as to supply Europe and lessen their dependance on Russian resources...he'll play the good neighbour/humanitarian card.

MurrayM said:

Pretty sure Putin's the target here. (Russia recently cancelled a 40 billion dollar pipeline project to Europe). http://www.nytimes.com/2014/12/31/w...n-region&region=top-news&WT.nav=top-news&_r=1

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He got a better deal with the help of Nato, it's what Europe wants.
"Novak later confirmed that Vladimir Putin personally ordered for the South Stream project to be mothballed, and its existing facilities to be repurposed for the new Turkish pipeline."
Gazprom to build new 63 bcm Black Sea pipeline to Turkey instead of South Stream ? RT News

I left NYC and cruised through 9 loaded tankers sitting out offshore just waiting. Yup. Somethings up. Time will tell.

OK Guys, I am in the oil industry and work at the Purdhoe Bay Alaska oil field.

While I am not an oil economist I am not a layperson on this subject either.

It costs money to produce oil, we all know that. The term is called "lifting costs"
The lifting cost for our field is not public information, but most people that work here beleive it to be around $60 a barrel.

The basic logic is if we sell for above our lifting cost we make money, if we sell for below the cost we loose money.

OPEC has been very effective at controlling the amount of oil on the world market to keep prices at levels they are comfortable with. They do this by intentionaly limiting production. Supply and demand dictates the price on the free market.

The United States has no laws in place to force a company to limit production. When we start producing a field we let it produce what it will. We do not limit production.

That system seemed to work OK (with a few hickups) until technology was developed to allow the nations shale oil fields formations to be profitable for oil production. Understand that we have been experimenting with how to get oil out of shale formations for decades. Well, the technology finally matured enough to make it profitable (at the oil prices of the day) and we started drilling and producing shale oil.

This huge amount of increased production all by itself would normally bring prices down somewhat. How much I do not know but it makes sense. More supply, cheaper oil.

The problem is that the Saudis I beleive, decided to produce more oil, with the obvious interntion of lowering oul prices to a point where shale oil was not profitable any more. This would in the end theoryetcially cause the shale oil fields to be shut in, removing that production from the market, and allowing the non shale based oil rich countries to regain control of supply and the price of oil.

Apophyge said:

U.S. shale oil will be the "governor" of oil prices. If it goes too high, production picks up. Goes too low, pumps shut down. If the price is reasonable, burn Saudis oil and keep ours in reserve. Just keep the price low enough to keep Russia in check.

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Spot on. Longer term it depends how cost effectively alternative sources, which I understand have made the US self sufficient, can be turned on and off. I can`t see a lot of $ being ploughed into new alternative sources while prices hover at current levels, but maybe that will be as elastic as production from existing alternates.
Land pump price here is now falling to/just under $1.00 per liter. And that`s with our $ devaluing 15-20% against the US, though more or less maintaining against the Euro.

BruceK said:

Spot on. Longer term it depends how cost effectively alternative sources, which I understand have made the US self sufficient, can be turned on and off...

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If fracking for natural gas is controversial, I can't imagine what fracking for oil will do to ground water. Could get messy...

Better do your homework regarding freshwater zones (ie- useable drinking water) and fracking within oil zones (saltwater- unusable drinking water) before your emotion guides you...

Giggitoni said:

Better do your homework regarding freshwater zones (ie- useable drinking water) and fracking within oil zones (saltwater- unusable drinking water) before your emotion guides you...

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That would depend on what sources are providing the homework, no? Industry sources (of any kind) have a spotty history with regards to truthfulness...

Giggitoni said:

Better do your homework regarding freshwater zones (ie- useable drinking water) and fracking within oil zones (saltwater- unusable drinking water) before your emotion guides you...

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MurrayM said:

That would depend on what sources are providing the homework, no? Industry sources (of any kind) have a spotty history with regards to truthfulness...

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Found this after a 2 minute Google search; LA Times

Found this after 30 seconds.

http://wvmetronews.com/2014/09/17/duke-research-fracking-not-to-blame-for-groundwater-contamination/

...and this...

http://energyindepth.org/national/how-anti-fracking-activists-deny-science-water-contamination/

Gentlemen, may I remind you this discussion is going on in the General Forum. Anyone wanting to take this political should go start a thread in OTDE.

1973 all over again? Not hardly.

Actually, it's the exact opposite.

As for the speculators holding oil in tankers offshore........ at $40,000 a day storage, they may get their asses handed to them.

SteveH

As Ksanders said its all about Saudi trying to regain control of the prices. A couple years of sub $50/bbl oil will kill off much of the competition, and prices will rise to unprecedented levels. Big price fluctuations cause havoc in the free market system, whereby the low cost national oil companies benefit greatly in the long term.

Enjoy the cheap stuff while its here, because it won't last for long.

The oil tankers sitting offshore are more likely due to a fast changing oil price causing plenty of re-negotiating of supply contracts, reneging on deals, and associated legal battles.

Perhaps that partly explains the large number of ships anchored in South San Francisco Bay.

SteveH,
No I agree. Not 73. We got gas on odd or even days depending on our license plates. And there were long lines.
But 73 may or may not come after this present present to fuel consumers.

These things tend to be self correcting. Abundant supply results in cheaper prices, cheaper prices result in increased consumption, increased consumption results in decreased supply and higher prices. The Saudis, who enjoy ridiculously cheap extraction costs can afford their attempt to control the markets for a wile, but in the end the markets will, as always, self adjust. As for the North American drilling/fracking operations who have a much higher extraction cost than the Saudis, they'll continue to feel the pain. There will be consolidation of enterprises, there will be capping of wells, but as soon as the price rises back to the level where it once again becomes profitable to extract the product, they will. And so it goes.......

SteveH

I just saw the movie Syriana again a few minutes ago. Nice reminder to how it all works. Spanking Putin this time.