Seeking an "Economics for Dummies" - What up with oil prices anyway?

a reply to: neo96

I don't think that is right..

First off, if they did lower the price for long enough to "kill fracking", as soon as that happens and it dragged the price back up, the fracking pumps will then turn back on, stabilising the market.

Secondly, the cost of fracking is now a lot lower than it used to be, owing to maturing technology, better experience and lower operating costs. I've seen reports from American producers who say that while it used to be a high break-even point at the start, they can now happily live with the price as it is, if not lower.

It's not like the low prices are going to be an issue we can make money down to $40 and survive. But when summer hits again it'll be $4 a gallon no matter the price per barrel. Spring break time it will be rolling back up if we make it through this weekend that is!

a reply to: CrikeyMagnet

You want to know why prices are down??? Because OPEC doesn't want prices to be high. With prices high enough for fracking to be fiscally viable, OPEC becomes a much smaller player in the global oil market.

By letting the oil go for lesser prices now, they can stop US oil production or at least minimize it to the point that fracking no longer becomes viable.

My best friend is a mud engineer and he says that US oil drilling will continue, and they'll just sit on it till the prices go back up, so either way, US oil is here to stay.

Jaden

a reply to: Masterjaden

Granted... but the companies drilling that oil will be whittled down to the few who can afford to continue producing without buyers until the selling price of it returns to a level where they profit from its sale. Those who are currently employed in oil production in North America should rightfully be concerned for their immediate futures. (Though I suppose that's always a concern in the oil sector.)

While this might not impact the jobs of the people actually manipulating the tools that extract oil, it would directly affect all those involved in improving the process, in developing technology to make it safer, more efficient, and more environmentally "friendly" (I'm no apologist for the oil industry... but I am a willing participant, and I believe the methods can be improved a lot to reduce impact... so that's part of my job. I guess in that way it means this is a direct impact to my employment stability, but I'm not really saying that as a surprising revelation or anything.)

originally posted by: stumason

originally posted by: peck420
a reply to: roth1
If the target is Russia, why is OPEC's official target point above Russia's break point?

Russia's break even point is $105 dollars a barrel, so not sure what you're on about there.

But, in a nutshell, this is just oversupply in a market owing to a glut of production from non-OPEC countries, specifically the US, coupled with low demand from a slowing Chinese economy. OPEC is right, the market will stabilise but I think the period of high oil prices benefiting countries like Russia and Iran is over.

Decent article on the Oil price situation from The Guardian.

What is so hard to understand between a government's budgetary price and an actual break price?

Break price is where the company that is extracting the actual product requires the selling point to be to turn a profit.

Budgetary price is an imaginary number that politicians plug into a budget to make plebs feel better.

The only thing I have learned in the past 2 weeks is that ATS, as a community, knows zilch about resource extraction.

Surprising, since every single post is brought to us by an oil derived product.

a reply to: peck420

Not necessarily fair to say ATS knows zilch about resource extraction... as the vast majority of people in the world (and likely even within the industry itself) have very little clue of the logistics or economics of the thing. It doesn't help that there's little clear help out there. The intention of this discussion was to demystify the discussion from "Magical beings control the prices of such things from their cloudtop perches" (the standard mass-consumption explanation) to "here's what sets the market price of oil, and how it impacts you and everyone around you".

Now, whether this discussion has been helpful or educational in that way is up for others to decide. I feel somewhat enlightened in more of the economic driving factors and world politics involved... but nothing that has expanded my worldview. It was more confirmation that A) we are not meant to understand it because "it's so complex", and B) It's not really as complex as all that.

a reply to: CrikeyMagnet

'Demand has stalled...'

That's a good one. More like SA is putting the screws to Gazprom and NA fracking. SA can ride it out financially. Russia? No way. US fracking industry? Not much better.

Could be time for a significant world event to counter this OPEC move. We shall see...

Really there are cheaper sources of oil now than there was in past in part due to fracking The issue is that there is very little regulation in that industry. Oh i know you guys are going to scream about regulations strangulating your profits.However the onshore fracking industry is not regulated to the level off offshore drilling for example. BUt these costs assume getting the crap out of the ground, not making it a useful product. My understanding of the of the crap that arrives from the keystone pipeline i that the majority of refineries are not equipped to handle this stuff so modifications will need to made to these plants in order to process this slurry, and at the moment we do not have capacity to deal with this stuff. So reality its a non issue pushed because Canada knows thar they don't want this crap but maybe they an sell it to the americans.

a reply to: CrikeyMagnet

IMO- the fuel manufacturers want to keep people from alternate fuel cars.

a reply to: brokensnipe

While the Heavy Crude from Fort MacMurray is more difficult to deal with (starting with high viscosity and need for heat to transport it effectively), it is abundant, and (compared to other oil extraction methods) not... (how's the best way to put it?)... we could do much worse things to the environment. We probably have done things to the environment, and are doing said things right now that would make Fort MacMurray Tar Sands look like a petting zoo. (I'm not saying it's non-impacting... just that some celebrities saying it's out of control and leaving a wasteland in its wake is hyperbole and sensationalism at best.) And the fact is, we already know the processes required to deal with the product. There could be a well-set-out path to get to processing it in facilities that are not capable, and all of the steps along that path would A) employ people, and B) result in greater energy independence for North America as a whole.

All I can really say about fracking (other than how oddly cool the process is if you look into how it's actually done) is that it's necessary now, until we find a better way, and until we find a better energy and physical product source (high output of plastics from plants?). There are a lot of developments that have happened there, as ways of increasing output, reclaiming water used in the process, and the vast majority of companies are using completely natural (like walnut shell) or inert (varying sizes of natural and artificial sand) proppants. These help to control subsistance of the surface in areas that have been fractured. The problem of land subsiding after oil extraction due to reduced pressure in underground reservoirs is a more difficult one to solve, but is a problem for all fluid extraction situations.

Wow. I went off topic.

The point: yes. We can reduce the cost by stimulating (fracking) existing wells, but not by exploiting tar sands (it's crazy expensive to run those outfits, so it has a much higher break-even than traditional oil extraction methods). We are not yet at a point where we can reduce the cost enough to keep these things operating when OPEC sends the oil price into a nose-dive.

originally posted by: VforVendettea
a reply to: CrikeyMagnet

IMO- the fuel manufacturers want to keep people from alternate fuel cars.

I suspect the fuel producers (in North America at least) will be hurt by this far more than the desire of people to decouple from the oil extraction circus. In most cases, I'd expect the big oil concerns within North America would be the first to push for stifling alternate fuels and energy sources... but I think they'll be happy to come out of this alive at this point.

Why isn't kerosene or diesel falling at same rates?

Why are shipping costs remaining virtually the same driving down the costs of goods that require shipping and/or freight?

A lot of what is going on doesn't make sense.

originally posted by: Terminal1
Why isn't kerosene or diesel falling at same rates?

Why are shipping costs remaining virtually the same driving down the costs of goods that require shipping and/or freight?

A lot of what is going on doesn't make sense.

Shipping usually buys fuel on the futures market as do airlines. As a result it takes time for a drop in costs to be reflected in the price. I couldn't give you an answer for kerosene.