How does cheap oil effect other countries?

[Schifference]

Obviously oil & gas prices are low compared to years past. Is that intentional? What impact do low oil prices have on other countries? Do low oil prices breathe new life into the petro dollar?

 

[Todd]

I'll guess it sure isn't making the Russian's very happy

 

[seraphson]

Affect.

I honestly thought prices were lower given the crappy state of the economy. Less work means less demand for petrol (since it's used in some way, shape, or form for virtually any application). Less demand means lower prices. If it was intentional I would imagine lowering gas prices would be a one trick pony "ace in the hole" to spur the economy before additional measures are taken.
How will it affect other countries? Depends on the country. Middle-eastern countries will be probably taking a hit (or any petro heavy country for that matter).

 

[Zippyjuan]

US- lower gas prices for consumers but it puts pressure on the fracking companies which need a high price for oil to cover their high costs of drilling (output from a fracking well is lower than more "traditional" oil wells in the first place and it also peaks sooner- as quickly as a year before production drops off- to keep production levels high as they are you need to be constantly adding more wells).

Countries which rely on energy revenues for their budgets will be hurt. Not just Russia but Mexico, Venezeula, and most Arab countries including Iran and Iraq. Saudi Arabia is said to need $80 a barrel to balance their budgets which have soared in recent years as they help prop up other governments in the region. Canada get government revenues from oil as well but have other sources of taxation as well. http://globalnews.ca/news/1700105/low-oil-prices-hurt-government-revenues-oliver/

How big these impacts are will depend on how low oil goes and how long it stays there.

 

[invisible]

US- lower gas prices for consumers but it puts pressure on the fracking companies which need a high price for oil to cover their high costs of drilling (output from a fracking well is lower than more "traditional" oil wells in the first place and it also peaks sooner- as quickly as a year before production drops off- to keep production levels high as they are you need to be constantly adding more wells).

This is the second time I've seen you mention this, so it's apparent that you know at least a little bit about the economics of fracking. Do you feel that OPEC not lowering production quotas is an attempt to force US fracking companies out of business? In general, do you feel that the currently low oil prices will force fracking companies out of business? If that happens, do you feel it will simply resume once oil prices rise again? What about natural gas wells, wouldn't the fracking companies just drill for natural gas instead, and keep selling it in asian markets? I've read a number of articles that claim fracking is unsustainable due to how quickly well production declines, and that fracking activity is expected to peak and decline sometime between 2015-18 (depending on the article) - what do you think will happen there in the long term? I'd be curious to hear your opinions on all of this.

 

[Zippyjuan]

If OPEC wants to raise the price of oil by reducing output, about the only country which can handle it is Saudi Arabia and they are worried that if they do, they lose market share. US companies certainly don't want to cut production- they have billions invested into equipment and labor the need to recover.


New article says Saudi Arabia can live with $60 a barrel for a while and expect the price to stabilize near there:

Saudi Arabia Sees Oil Prices Stabilizing Around $60 a Barrel
OPEC’s Biggest Oil Producer Isn’t Likely to Push for Production Cuts as a Result

LONDON—OPEC’s biggest oil producer, Saudi Arabia, now believes oil prices could stabilize at around $60 a barrel, a level both it and other Gulf producers believe they could withstand, according to people familiar with the situation.

The shift in Saudi thinking suggests the de facto leader of the Organization of the Petroleum Exporting Countries won’t push for supply cuts in the near-term, even if oil prices fall further. Brent crude dropped 62 cents a barrel to $69.92 on Wednesday.

The change in Saudi mind-set also suggests OPEC members may have to adapt swiftly to shifts in the oil market caused by a surge in supply from the U.S. shale revolution and slowing global demand growth. As recently as early November, OPEC officials were talking about $70 a barrel as the sustained level at which there would be “panic” within its ranks.

The Gulf states “don’t have a price target, and if prices drop further below $60, it won’t be for a long time,” a Gulf oil official said.

Before last week’s OPEC meeting in Vienna, the Saudis had been considering a Venezuelan proposal to cut the producer group’s oil output sharply. The possible deal finally fell apart when Russia, a major oil producer that isn’t a member of OPEC, refused to participate in a general supply cut, according to people familiar with the situation.

That gave Saudi Arabia and its Gulf allies cover to push an unpopular strategy at OPEC’s main meeting last Thursday of not changing the cartel’s production target, in an attempt to defend market share rather than prices. That view prevailed, leading Brent crude to fall 10% in the past week.

Saudis were only willing to make cuts in production if everybody else would cut as well so they could keep market share but the offer didn't work out.

During an early November meeting on the Venezuelan resort island of Margarita, Saudi Arabia’s oil minister, Ali al-Naimi, had told Venezuela’s foreign minister and OPEC representative, Rafael Ramirez, he would support a cut only if the Venezuelan minister could convince others both inside and outside of the cartel to participate, according to people familiar with the situation.

It was a “mission impossible,” said one OPEC delegate. Struggling OPEC members like Iran, Libya and Iraq argue they should be exempted from any move to cut output. Historically, persuading non-OPEC members to join the group in reducing supply has met with limited success.


However, just 48 hours before OPEC’s semiannual meeting last Thursday, Mr. Ramirez gathered senior energy officials from Saudi Arabia, Russia and Mexico—another non-OPEC member—in Vienna’s Hyatt hotel.

On the table was a proposal to take two million barrels a day of oil supply out of the global market of more than 90 million barrels a day, according to people familiar with the situation. The bulk of the cut was to be shouldered by OPEC, but Russia and Mexico combined were expected to contribute a reduction of 500,000 barrels a day, the people said.

The meeting ended without any deal to cut supply, Mr. Ramirez told reporters immediately afterward. Within hours, Russian state oil company OAO Rosneft said it wouldn’t cut its oil output.

Mr. al-Naimi rebuffed calls led by Venezuela for the oil-producing cartel to reduce its output by 5%, arguing it would cost OPEC market share without guaranteeing prices would improve, the people said.

Mr. al-Naimi told the ministers that enduring lower prices would force high-cost oil producers outside of OPEC, like U.S. shale-oil companies, to cut back production themselves, tightening the market by the second half of 2015, the people added.

They do seem to want to force some reductions from US facking industry but recognize it will take a couple years to have much impact on global production so low oil prices could be with us for a while.

 

[invisible]

If OPEC wants to raise the price of oil by reducing output, about the only country which can handle it is Saudi Arabia and they are worried that if they do, they lose market share. US companies certainly don't want to cut production- they have billions invested into equipment and labor the need to recover.


New article says Saudi Arabia can live with $60 a barrel for a while and expect the price to stabilize near there:




Saudis were only willing to make cuts in production if everybody else would cut as well so they could keep market share but the offer didn't work out.





They do seem to want to force some reductions from US facking industry but recognize it will take a couple years to have much impact on global production so low oil prices could be with us for a while.

That doesn't say anything about what you think will happen with the US fracking industry, though.

 

[tangent4ronpaul]

I think it's economic warfare aimed at ISIS and Russia over the Ukrainian situation.

I'm betting our gvmt bribed or otherwise influenced the Saudi gvmt to push a deal that was guarantied to fail.

-t

 

[Zippyjuan]

Most are highly leveraged but have borrowed lots of money. As long as they still have cash, they can keep drilling. If oil prices stay low for several years, there will be a shakeout with many forced to close up. If prices stay low for a short time, more will be able to ride it out. Canada's tar sands (our largest source of imported oil) is also a high cost oil producer.

http://www.npr.org/2014/11/04/361204786/falling-oil-prices-make-fracking-less-lucrative

Falling Oil Prices Make Fracking Less Lucrative

Oil prices are down than more than 25 percent since June and are staying low for now. Drivers may appreciate that, but for oil companies, it's making some of the most controversial methods of producing oil less profitable — and in a few cases, unprofitable.

Most of the world's oil is selling for about $80 to $85 a barrel now. But not all oil is created equal. In the Middle East, it's cheaper to produce, at a cost of less than $30 a barrel on average, according to the Norwegian firm Rystad Energy.

But in the Arctic, producing a barrel costs $78 on average. From Canada's oil sands, it's an average of $74 a barrel. And because those are averages, some companies have costs that are higher — which means there could be drillers currently producing crude at a loss.

Here in the U.S., the oil drilling boom is due largely to technologies like hydraulic fracturing, or fracking, used to force oil from shale formations deep underground. Producing this oil, Rystad figures, costs an average of $62 a barrel.

"What is really interesting for the U.S. drillers and producers is how long they are going to continue the high activity levels that they have, now that prices are going down," says Per Magnus Nysveen, head of analysis at Rystad.

Already, some companies are rethinking their plans.

Saudi Arabia's oil minister, Ali Al-Naimi, shown in Kuwait last month, has played down the drop in oil prices. The country continues to pump oil at high levels, saying it wants to preserve its market share. But this has also contributed to a 25 percent drop in oil prices since June.

"We will drill fewer wells in a lower-price environment," says Steven Pruett, president and chief executive officer of Elevation Resources in Midland, Texas. With less profit, Pruett says, there's less money to invest in future prospects.


But he also says this isn't a crisis situation for most companies.

"We do not foresee a scenario where prices get so low that we can't cover the cash cost of lifting the barrel," says Pruett. If prices collapsed to 2008 levels, when oil was fetching less than $35 dollars a barrel, drillers might be forced to take more drastic steps like shutting down production. But few are predicting crude will fall that much.

Such policies may affect production in the future, but for now, it's the market that determines if drilling will happen. And the lure of billions of dollars in future profits is hard for energy companies to ignore. Even with lower prices, they are still exploring high-cost environments like the Arctic.

There are a few reasons why companies can justify the cost. Oil prices may rise again, for example, and costs tend to go down after new technologies and forms of production have been around awhile. On top of that, global crude demand continues to rise.

"And that's the reason why companies are making these investments, because they're long-term investments in projects that are expected to provide very large quantities of oil and natural gas for the U.S. economy and for the global economy," says Erik Milito, director of Upstream and Industry Operations for the American Petroleum Institute.

 

[HVACTech]

They do seem to want to force some reductions from US facking industry but recognize it will take a couple years to have much impact on global production so low oil prices could be with us for a while.

I have seen this happen, enough times that I have to ask the forbidden question.

does that stuff, oil, hydrocarbons, petroleum etc. (oil, natural gas, (methane) and coal)
really ONLY come from "fossils"

the ghawar oilfield is not that large.
Ghawar Field
Oil Field
Ghawar is an oil field located in Al-Ahsa Governorate, Saudi Arabia. Measuring 280 by 30 km, it is by far the largest conventional oil field in the world. Ghawar is entirely owned and operated by Saudi Aramco, the state run Saudi oil company. Wikipedia

if there is one...
how many others might there be?
unless of course. Allah put it there. and there ONLY.

I know, it is silly to speak of the source of the commodity at question.

 

[Zippyjuan]

The largest oilfield in the world "isn't that large" at some 200 miles long? If there are others, why haven't they been discovered? Oil companies would like to have the easiest, cheapest oil they can get out of the ground since that would mean maximum profits to them. Fracking and tar sands cost them a lot of money to get out of the ground. Companies have spent billions looking for another Ghawar and haven't found any.

 

[HVACTech]

The largest oilfield in the world "isn't that large" at some 200 miles long? If there are others, why haven't they been discovered? Oil companies would like to have the easiest, cheapest oil they can get out of the ground since that would mean maximum profits to them. Fracking and tar sands cost them a lot of money to get out of the ground. Companies have spent billions looking for another Ghawar and haven't found any.

clearly, you have not been to west Texas. 200 miles would probably be less than from Dallas to El Paso.
and only 15 miles from either side of I-20.
my bad, it is ONLY 631 Miles from Dallas to El Paso....

any idea why they call them the "great plains" ?
just curious.

 

[torchbearer]

Austin Chalk, under my home in the middle of Louisiana. How did it get all the way from Austin to here? That is a huge oil field. slow producing, but longer producing.

 

[Zippyjuan]

Interesting. Sounds like a strip of related but not connected oil pools? Like shale oil, they have found success using horizontal drilling to connect pools.

 

[HVACTech]

Interesting. Sounds like a strip of related but not connected oil pools? Like shale oil, they have found success using horizontal drilling to connect pools.

I did the math on it a longtime ago, at the time. 60 billion barrels had been pulled from just the gharwar oil field. this works out to a square cube 19x19x19 miles.
given the earths size, this is pretty tiny.
but it is a whole lot of dead dinosaur poop!
that same dead dinosaur poop is also responsible for Natural Gas (methane) supplies.
or so the "fossil" fuel theory purports.
determining the source of these now critical commodities is very important to mankind.
this is one of the reasons that I am not a pure enough Anarchist for most folks around here.
todays world requires "utilities"
utilities require large scale cooperation.
peace.

 

[torchbearer]

Interesting. Sounds like a strip of related but not connected oil pools? Like shale oil, they have found success using horizontal drilling to connect pools.

My father was a fishing tool supervisor of much renown in the industry. When things got stuck in the well, companies wanted him on the job to fish it out. The man had a high school diploma and average grades, but could understand what was happening deep underground and how to resolve it.
He saved many wells, and the drivers of america had him to thank for it being as cheap as it was. Rigs aren't cheap to run. The longer they are in drilling phase, the more the well cost, the less profit that is made. Making that domestic oil production cost go up.
I know a little bit about the industry from growing up in it. If you trade in such commodities, I can give you some advice from time to time.

For 10 years now an oil company has paid my grandfather and our neighbors $50/acre to hold the right to produce. they'd make more with production.
Here is the kicker. None of our land has been produced. Every 5 years the oil companies renews the lease. So as long as they don't produce, my family keeps getting paid. And when they finally produce, they will pay even more.
My grandfather oversees 1000 acres. (almost right in the middle of louisiana- in the red bricks)

 

[torchbearer]

Interesting. Sounds like a strip of related but not connected oil pools? Like shale oil, they have found success using horizontal drilling to connect pools.

And yes, you are right about the method of extraction.

The picture shows efficiency gains over time. $3/barrel of oil in 1994.

 

[torchbearer]

So the question is how low can the price per barrel go before this type of drilling becomes detrimental to an oil companies budget?
It can go real low. Domestic drilling will not slow until it hits below $30/barrel.

 

[torchbearer]

The Saudi's are playing a game of chicken they will lose. Their budget can't afford anything less than $80/barrel for nationalized oil production. Free market production here can tolerate below $30/barrel conditions.

 

[Zippyjuan]

Thanks for the info!