posted on May, 26 2009 @ 03:42 PM
Originally posted by GreenBicMan
reply to post by king9072
Yeah, wish it worked like that, unfortunately it does not.
Its due to about 1000 factors, none that I could say I am fluent in.
A lot of the price increase is because oil companies have significantly decreased production, lifting costs have gone way up lately yet what the oil
companies get it for is a lot less than the middle men resell it for. Remember $40 per barel is what it costs to buy it on the commodity market. I
have seen lifting cost numbers for a bunch of fields lately (lifting cost is the price per barrel to get it out of ground and to market). The best
ones are in the $12-18/barrel range. The worst is above $30 per barrel.
Commodities trading was supposed level out the market fluctuations but it seems to make them worse and discourage new production.
I think part of the timing is everyone who was going to actually drill this year has finalized the decision to not drill. It's been less than 6 weeks
since the end of the drill and construction season in Alaska and northern Canada (they only work when the ground is frozen in many areas).
I have a theory for you to all ponder. I'll lay it out in point form.
1) Demand for oil and gas increases over a period.
2) Oil and Gas (O&G) Companies drill more wells. New wells produce more but have higher lifting costs because they have all the capital expenses
3) Costs are raised artifically
4) Economy tanks
5) Demand for O&G crash
6) Lifting costs stay high on the new wells.
7) The banks start calling in all the loans and lines of credit (LOC) the O&G companies used pay for the huge capital cost of putting in new wells and
8) Some O&G companies (mostly Trusts less than 10 years old) are suddenly facing huge increases in operating costs, increased taxation, decreased
sales at lower prices. Many of these Trusts are now borrowing money from the LOC to pay the interest on the LOC.
9) The estimate is that if prices stay below $65-75 per barrel we will see 40-50% of all the trusts go under and their assets picked up cheaply by the
10) It's worse for Gas (natural not gasoline) producers as prices stayed artifically low since last fall. This is partly caused by the huge amounts
of Natural gas being dumped on the world market below cost by the Russians, Chinese and Venezualians. It would be even worse but an accident at the
new Chinese loading facility 2 months ago trashed it other wise they would have been able to triple the amount of Natural Gas they are shipping out of