Maybe this whole thing is a manipulation to hurt Russia. Get everyone on board. Obviously the House of Saud is. The ruble is cratering. We might be witnessing WWIII just in the markets. This is the new warfare.

That is at least a plausible theory because lower oil prices killed Russia some years ago.

(11-14-2014 01:29 PM)UofMstateU Wrote:  That is at least a plausible theory because lower oil prices killed Russia some years ago.

It's more about Saudi market protection than anything else. Once oil went to $100/bn, things like the Canadian/American oils sand as well as the Siberian wells became economically viable. These are nations outside of OPEC and would yield to the market manipulation that the Middle Eastern body usually engages in.

To protect their margins and eliminate the competition, the Saudis are flooding the market to get oil back down to $80/bn. If trading remains at that level for 3-4 years it will bankrupt all the outside OPEC producers. When the oil sands market dries up, oil will go back up to $100/bn.

As long as we're independent with our own oil and use it for ourselves while other fend for themselves, we'll be fine and can keep low gas prices.

Bankrupt? From what I've heard the oil sands and fracking only need about $60/bn in order to be economically positive for those companies.

The people it is going to hurt is our large oil companies. It's fantastic for small oil companies though.

(11-14-2014 01:56 PM)mlb Wrote:  Bankrupt? From what I've heard the oil sands and fracking only need about $60/bn in order to be economically positive for those companies.

Clearly I've heard differently. It would by interesting to get Tom in Lazybrook's perspective since he works in the field. But if oil sands are economically sustainable at or below $80/bn, the Saudis are done.

Makes more sense than supply and demand.

(11-14-2014 02:10 PM)vandiver49 Wrote:  

(11-14-2014 01:56 PM)mlb Wrote:  Bankrupt? From what I've heard the oil sands and fracking only need about $60/bn in order to be economically positive for those companies.

Clearly I've heard differently. It would by interesting to get Lazy Tom's perspective since he works in the field. But if oil sands are economically sustainable at or below $80/bn, the Saudis are done.

I guess it depends on the field. Here is a nice breakdown for the shale oil:

http://www.bloomberg.com/news/2014-10-17...om-it.html

Its all good.

Think if we used the Strategic Oil Reserves wisely. Fill it up now and loosen it up to pay bills later. I would like to see some numbers but right now we should be filling that puppy up to the gills!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!1

It's temporary.

The price of a barrel is fast approaching the marginal cost for many drillers. When this happens, they will shut down wells, thus reducing supply and ultimately raising prices.

Even if we become 100% oil dependent, our prices will still be set by world demand.... The only thing really keeping our oil prices cheap is the fact that the $ is the worlds reserve currency.

(11-14-2014 01:27 PM)Machiavelli Wrote:  Maybe this whole thing is a manipulation to hurt Russia. Get everyone on board. Obviously the House of Saud is. The ruble is cratering. We might be witnessing WWIII just in the markets. This is the new warfare.

Why would the House of Saud want lower oil prices? I don't see that. Saudi Arabia isn't turning on the spigots to cause oil prices to collapse, but rather is trying to protect its market share by keeping its output the same. They learned a hard lesson in the 80's with not trying to protect their markets.

Here's what happened. Massive new production, combined with an American economic expansion that didn't involve increases in oil consumption, combined with a slowdown in China's economy caused inventories to rise. That inventory rise caused prices to fall.

There are a several countries that are dangerously overreliant on oil revenues to finance their budgets. Those nations need hard currency badly and will attempt to increase production to keep those dollars flowing in. In other words, if you needed to sell 100 barrels at 110 dollars a barrel to pay for your expenditures, you need to sell around 135 barrels at 77 dollars a barrel to keep your budget in balance. So the response of many countries to a fall in oil prices is to increase production. The Saudis recognize that countries that have budgets based upon higher prices than currently exist in the market, especially Russia, Venezuela, Nigeria, and Iran, will likely open the spigots to the extent they can. The Saudis, who also have some budget issues, are simply playing the same game as everyone else, largely to protect their market share. This is what happened. And it turned a bear market into a rout.

I'm not sure we're done yet either. I see the 'natural price' of WTI at around 80 a bbl. But we could see much lower prices for a while until the markets calm down.

(11-14-2014 05:05 PM)QuestionSocratic Wrote:  It's temporary.

The price of a barrel is fast approaching the marginal cost for many drillers. When this happens, they will shut down wells, thus reducing supply and ultimately raising prices.

There's a big difference between the price at which a company shuts in existing production and the price where a company decides to simply not explore for oil. They've already spent the money to drill for the oil. They'll extract it.

The real issue is that for many of the new plays in the market, the exploration cost is still below the WTI price. And there's a lot of proven production sitting out there to come on line if the markets try to move back up.

Basically even at 74 a bbl, you'll see little reduction in production (perhaps in the Northern Alberta oil sands). You'd have to see prices fall into the high 50's for companies to shut in other plays.

And all of that known production that is untapped is going to cause prices to meet resistance on the way up.

That of course is predicated on no upsets in the market. Iraq, Iran, ISIS, Russia, Libya and Nigeria could fall into chaos, which could cause a shock to the market. But as we've seen with ISIS and Nigeria and Libya, the need of people to get the money will usually keep the oil flowing.

(11-14-2014 02:46 PM)Machiavelli Wrote:  Think if we used the Strategic Oil Reserves wisely. Fill it up now and loosen it up to pay bills later. I would like to see some numbers but right now we should be filling that puppy up to the gills!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!1

The SPR shouldn't be used to move the market. It should be kept full in order to protect us from supply shocks. The SPR does, from time to time, sell oil out of the reserve outside of supply shocks, usually for physical constraints of the storage facilities such as the need to turn the oil over in the facility.

I think we should use it to pay off the debt. We could have made some serious money in 2008.

Thanks for your perspective Tom.

(11-16-2014 11:00 AM)Tom in Lazybrook Wrote:  

(11-14-2014 02:46 PM)Machiavelli Wrote:  Think if we used the Strategic Oil Reserves wisely. Fill it up now and loosen it up to pay bills later. I would like to see some numbers but right now we should be filling that puppy up to the gills!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!1

The SPR shouldn't be used to move the market. It should be kept full in order to protect us from supply shocks. The SPR does, from time to time, sell oil out of the reserve outside of supply shocks, usually for physical constraints of the storage facilities such as the need to turn the oil over in the facility.

The SPR doesn't contain enough oil to move the market for more than a very brief short-term period. And if we used it that way, the oil would all be gone and any tempering effect it might have would be lost.

(11-16-2014 02:34 PM)Owl 69/70/75 Wrote:  

(11-16-2014 11:00 AM)Tom in Lazybrook Wrote:  

(11-14-2014 02:46 PM)Machiavelli Wrote:  Think if we used the Strategic Oil Reserves wisely. Fill it up now and loosen it up to pay bills later. I would like to see some numbers but right now we should be filling that puppy up to the gills!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!1

The SPR shouldn't be used to move the market. It should be kept full in order to protect us from supply shocks. The SPR does, from time to time, sell oil out of the reserve outside of supply shocks, usually for physical constraints of the storage facilities such as the need to turn the oil over in the facility.

The SPR doesn't contain enough oil to move the market for more than a very brief short-term period. And if we used it that way, the oil would all be gone and any tempering effect it might have would be lost.

You are correct. The only thing it can really do is to flush fill the inventories on the gulf coast. But since all SPR movements are subject to public review (after the fact), it would be quite obvious what was going on.