Correct. It only is a 50% cost drop in a portion of the cost of gasoline.
Posted on 12/09/2015 8:12:46 AM PST by SeekAndFind
Saudi Arabia might just bust OPEC by keeping its taps open, but right now the Kingdom's main concern is strangling American shale production.
Read:
Markets had been expecting Opec to announce a new ceiling on production after last Friday's meeting, but analysts at Barclays said the lack of any curbs in its announcement was a sign of discord. "Past communiques have at least included statements to adhere, strictly adhere, or maintain output in line with the production target. This one glaringly did not. "Â they said.
Saudi Arabia needs oil prices of $100 a barrel to balance its budget, but as the world's biggest exporter of crude it is gambling that the low price will knock out the threat posed by so-called unconventional supplies, such as shale.
The chief executive of Saudi Aramco, Amin Nasser, said at a conference in Doha on Monday that he hoped to see oil prices adjust at the beginning of next year as unconventional oil supplies start to decline.
In a sign that US production could dip, Baker Hughes' November data showed US rig count numbers down month-by-month by 31 to 760 rigs.
The story also notes that "Venezuela, in particular, is thought to be suffering badly as a result of the drop in oil prices." But that's what happens when you're a one-industry socialist country which has been neglecting to invest in that industry.
But here in America? The Saudis aren't stupid, so they must understand that our shale oil isn't going anywhere. Sure, a lot of wells will go offline at $40, even more at $30, and the fracking industry might nearly shut down at $20.
And then what? Oil prices will rise, and those shale wells will come back online.
Saudi Arabia has one big advantage. Its crude oil is plentiful, easy to get to, easy to refine, and cheap to transport. That lets Riyadh set a price floor far below anywhere that most anyone else can make a profit.
American shale oil is also plentiful, but it's much harder to get to, harder to refine, and more expensive to transport. But there's so dang much of it that our frackers can set a price ceiling far below OPEC's salad days of $100-plus crude.
Thanks to the cutthroat capitalism practiced in this country, new extraction methods bring that ceiling lower. Fracking once required $100 oil to make a profit. Now some producers can go as low as $50. And that number will continue to shrink.
Until and unless the Saudis can convince Washington to hobble American frackers by law -- and don't think the Democrats haven't tried and won't try again -- then OPEC's salad days aren't coming back for a very long time, or maybe ever.
Many gas taxes are a fixed amount per gallon. It’s getting to the point that most of the price is taxes.
Correct. It only is a 50% cost drop in a portion of the cost of gasoline.
My assumption is that you can’t kill cracking. You can only put it to sleep with a wake up alarm set to a particular price per barrel.
They can’t do it for long. The Saudi’s essentially keep control of the population by bribing them...and funding just about all public services with oil money.
They just built a large off-shore/near-shore project, which had a very short payback period - they will have to re-calculate that. To me, the fact that they are now building man-made islands in shallow water to drill must mean one thing: the era of 50 ft deep oil wells in Saudi is about over. The old fields must be dropping in production, and their price gap advantage in getting oil out of the ground will gradually diminish.
Folks that bought leases with a $100 target for oil/$15 for gas are going to get hosed. But the oil and gas are still there for folks that want to pick it up in the $30s/$2s with a $40/$3 target.
Your drilling and fracking costs may be (more or less) fixed (although with the glut of equipment and people, there should be some downward pressure there) but the lease costs should move down significantly where folks want the money, not the minerals in the ground.
I know it hurts US jobs in those industries in the near term but that is capitalism. When the time is right, the US oil fields will be reopened and US oil will flow again when the prices are higher. The industry is not dead, but just dormant.
I'd say they're more concerned about Russian oil production since they're their main competitor.
Shutting down yanqui frackers is just gravy.
“The Sauds have bought enough congressmen to start a small army...”
Exactly. Not only congressmen, but media too.
Foolishness on their part. Fracking wells can be capped and reopened when the price is right.
i hope so!!!
That probably is true for any industry.
B if Obama BANS it then all bets are off. The muzzies can go back to charging whatever they want
Maybe you should actually look at the history of oil price volatility and discover oil dropping like this is quite normal. What was unusual was the price of oil maintain artificially high prices for 15 years. But oil will naturally have swings up and down. By the way, the dip is hurting countries listed like Iran, Russia, and Venezuela most of all.
No. It isn't that simple.
If you don't keep up production, most mineral leases will expire.
Also, after a time, law require them to be plugged with concrete if not in production.
More info on the physical problems at:
http://www.freerepublic.com/focus/chat/3233396/posts?page=102#102
I don’t think you get it.
This isn’t a free market issue, and it has a LOT to do with National Security. It also has a lot to do with protecting the average American from a predatory foreign monopoly.
The Saudis are waging economic warfare against us directed by the power of their state. It is an orchestrated attempt to make Americans dependent on their oil at $100/barrel.
Purchasing our own production at what are now above market rates would defeat the attack, protecting Americans from having their own industry destroyed and thus having to pay confiscatory prices after that.
Finally, its not paying an industry not to produce. Its paying them to produce a product that we know 100% that we need and that does not spoil.
The buy price would be ~$40/barrel, which is minimal profit, and the government would resell at ~$60/barrel when the Saudis ran out of money.
A smart CNC would consider paying the fracking oil companies to keep them open and break the Saudis and OPEC. The terrorist have to get their funding from somewhere, cut their money and they dry up and blow away.
I get it completely. I work in the oil/gas/petrochem industry. I don’t agree with you.
On the National Security side, we maintain the Strategic Petroleum Reserve.
On the industry side, our refining industry is as important as the oil production industry. Do not subsidize one to penalize the other. The government should never be selecting winners and losers in private industry.
The Saudi’s cannot maintain their current government at current oil prices for many years. But long before they crash, Nigeria, Venezuela, Angola, Algeria and others are going to have huge problems. Oil is not going to remain at this price without drastic changes.
So economic attacks on the United States that are specifically designed to destroy our own industry are free trade issues in your estimation? Not mine.
Any country that allows another to purposefully and maliciously destroy a segment of its economy is not protecting its citizens.
Would you consider it a subsidy to spend $40 billion to protect our oil fields from enemy bombers? I would guess not. The difference here is that the U.S. government would make money, the U.S. citizen would save money, and there would be more stability in the supply.
It also serves our national security purposes to put the Saudis in a position of weakness, so we have a lot more leverage with them.
Exactly!
We have far better ways to help the US oil industry over direct subsidy.
Let us start with removing taxes specific to the industry, reduce regulations to a more reasonable level, open up federal lands and waters to oil exploration and production.
Capital costs have been sunk into fracking, and there’re is a glut. I’m not seeing how facilitating cheaper exploration helps against the Saudi oil.
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