The Trouble With the Falling Oil Price

purch

antrobus wrote: »

Russian rouble dives despite shock rate rise to 17%

It would have been a major shock if it hadn't.

If you start to panic, guess what the market does :eek:

antrobus

Generali wrote: »

Probably although that brings in a confounding factor being the cost of oil tankers. Storing copper is cheap. I don't imagine oil tankers are although I'm willing to be disabused of that.

Well yes, I believe you have to pay for the tanker. But that's apparently what is done, and the reason why the cost of hiring a tanker has been increasing in recent months.

In fact, the world’s largest oil tanker – the TI Europe, capable of holding 3.2 million barrels of crude oil – is believed to be floating offshore of Singapore brimming with oil....Right now, approximately 50 million barrels of crude oil are being stored in oil tankers offshore of South Africa and Asia.

http://www.wallstreetdaily.com/2014/11/14/oil-tanker-floating/

antrobus

Shiney_Spoon wrote: »

I think most ordinary people will welcome a fall in oil prices.....

That would depend on which set of 'ordinary people' you were talking about. Ordinary British people might be overjoyed at the prospect of paying £1 a litre for their unleaded; ordinary Venezuelan people will be bricking it at the thought of what is to come.

jjlandlord

Even for ordinary British people, I think that cheering now will just mean more pain later.

I think that it has been shown that, for many reasons, we should divert from oil and thus from now on anything that delays that, or worse draws us back to oil, will be paid dearly later.

cells

purch wrote: »

It's hard to make a case that an Oil price much lower than it currently sits will be good news for anyone in the longer term.

Its easy to make the case that cheaper energy is good because energy is an economic enabler (especially electricity) so the cheaper and more abundant the better

cells

ging84 wrote: »

I'm not sure how much of this holds true

if these few wealthy people / families / governments etc who have been intent on consolidating their wealth from oil, and have been doing so for a very long time, then they will have built up an awful lot of it, so even if they are only get back 1-2% returns a year, 1-2% of a fund based on 40 years worth of oil revenues is going to be significantly larger than the annual oil revenues themselves, so if this is really what has been happening, then the oil revenues themselves are by now far less significant than the returns on the existing funds.

Few net oil exporters have been able to invest their money in anything they have instead had to use it to pay for their bills. And those that were able to save some money may well find that they need to dip into them when oil falls to sub $50 levels

plus expensive oil is only a recent thing, for most of oils last 100 years it been sold for $20 or less inflation adjusted to todays money so it wasn't that big a deal. In fact the UK had lots of oil but underperformed vs france in the 1980s, same was true for norway with lots of oil underperformed vs Sweden in the 1980s

cells

Joe_Bloggs wrote: »

If the price for a scarce commodity increases ,year on year it expensive. e economic alternatives involving new methods.

If supply exceeds demand for a commodity then the price falls.

The fall in price may undermine the entire financial viability of suppliers who require a higher price for a continued profitable existence. These suppliers may be existing upon borrowed money and time. The suppliers may have to enters a state of mothballing /hibernation/administration to exist beyond the perhaps temporary fall in price.

If you do nothing and are seen to do nothing but at the same time drive drive your competitors to near financial ruin then it is a successful sneaky stealthy strategy.

I suspect that the shale oil companies have the strategy to die and then resurrect themselves like the Phoenix when the oil price justifies it.

J_B.
Those with vastly more capital can make capitalism work better in their favor than those with less capital.

The problem with that old school view is that it thinks conventional = cheap while new shale = expensive. What if it has become shale = cheap and new conventional = expensive


It costs less than $8m to drill a new shale well in the USA. The payback at $50 oil and $3.50 NatGas from just first year production is over $13m for good oil sites. So even at todays 'low' oil price payback is less than a year


The advantage of shale is that it is high volume repetitive construction.
You could be looking at say 2,000 x shale wells at $8m a piece or 1 x conventional oil elephant at $16B. Both cost $16B in total but the shale is modular so first oil flows in two months while the conventional field first oil might be in 6-8 years. Also because of 'modular' construction the risk is much lower. Eg if you build out half way and spend $8B , for the shale you have 1,000 wells producing but for the conventional you have nothing. That reduces risk and cost of capital for multiple shale wells vs one conventional large well.

also shale produces very rapidly.

Eg 2000 x shale well producing 2 billion barrels over its lifetime of 30 years vs 1 x conventional well prodicing the same 2 billion barrels over its 30 years life. Is it vetter to have the first 1 billion barrel production over 3 years (shale) or over 10 years (conventional)

In every way shale is looking like it will become the new cheap production method.


It has already done it for NatGas. Shale Gas is now the largest source of NatGas in the worlds largest NatGas consuming nation!

vivatifosi

Sky News is running an article with Kuwaiti Sheikh Abdullah Bin Hamad Al-Attiyah who has said that OPEC has lost the ability to set oil prices and that they could be low for the next 15 years.

It's worth noting that neither Russia nor the USA are members of OPEC.

Crashy_Time

vivatifosi wrote: »

Sky News is running an article with Kuwaiti Sheikh Abdullah Bin Hamad Al-Attiyah who has said that OPEC has lost the ability to set oil prices and that they could be low for the next 15 years.

It's worth noting that neither Russia nor the USA are members of OPEC.

Interesting. Hamish?

Generali

vivatifosi wrote: »

Sky News is running an article with Kuwaiti Sheikh Abdullah Bin Hamad Al-Attiyah who has said that OPEC has lost the ability to set oil prices and that they could be low for the next 15 years.

It's worth noting that neither Russia nor the USA are members of OPEC.

Game theory (the Prisoners Dilemma) suggests that OPEC members would behave exactly as they are if they don't have pricing power over oil any more.