Oil - Simple question, Simple answer?

[imoldernu]

Grandson recently received his driver's license.
Yesterday he said he paid $2.27 for gas, but a few weeks ago had paid $3.69.

So the question was: "How come there is such a big price change? If the price was that high then, who was making money, and if it's low now, who is losing money?"
and then:
"Why?"
I had a bit of a problem with that, so my answer was "Because".
No way was I going to say supply and demand.

Not like it hasn't happened before.
Crude Oil Price History Chart | MacroTrends

West Texas Crude Prices
Dec. 1998, $16.38
June 2008, $145.69
Feb. 2009, $43.93
June 2014, $105.93
Dec. 2014 , $54.44 (so far)

 

[dallas27]

Why not supply and demand?


Sent from my iPhone using Early Retirement Forum

 

[eta2020]

99% of oil producers are making money even at oil at 10 dollars a barrel. For example Saudis produce oil at cost of 2 dollars a barrel.

But they need price of 90 because 88 dollars from each barrel produced are spend on social programs to make people happy with living under Saudi king

Similar logic applies to majority of producers. That means Frackers producing oil at cost of 40 dollars a barrel in the way have lower cost then Saudis.

 

[gromit]

The obvious answer to a newly licensed grandson is "Everyone stopped buying gas and got off the roads when they found out that you're driving too".

 

[Looking4Ward]

West Texas Crude Prices
Dec. 1998, $16.38
June 2008, $145.69
Feb. 2009, $43.93
June 2014, $105.93
Dec. 2014 , $54.44 (so far)

Ahhh.... I remember paying $1 a gallon in Austin for the last time in Dec 1998; it was the norm in central Texas from 1990-1998.

 

[imoldernu]

Why not supply and demand?

Perhaps if demand was connected to supply, that would be correct, but a good part of the 690 trillion dollar derivatives number is in oil, and there is no direct connection.
Time will tell if this is a good way to play the game.

And... I remember a visit by John Kerry to Saudi Arabia back in Sept.
Trying to connect the dots.

 

[marko]

My take is that the Saudis realized that the US fracking operation was creating an oversupply and making OPEC much less relevant.

Rather than let the market forces drop the price, their goal is to lower the price to the point where fracking is no longer a viable option, thus putting frackers out of business.

Lots of fallout as a result as we've been seeing.

 

[marko]

The obvious answer to a newly licensed grandson is "Everyone stopped buying gas and got off the roads when they found out that you're driving too".

+1 !! Classic!

 

[jimnjana]

My take is that the Saudis realized that the US fracking operation was creating an oversupply and making OPEC much less relevant.

Rather than let the market forces drop the price, their goal is to lower the price to the point where fracking is no longer a viable option, thus putting frackers out of business.

Lots of fallout as a result as we've been seeing.

I think Saudi is taking aim at a number of issues including the growth of oil production from fracking. IMO the OPEC cheaters are the number 1 target. While OPEC celing is 30 million bpd, they are exporting closer to 31 million bpd. Calls for cuts from members fell on death ears because those same members are the cheaters. Saudi took aggressive action to preserve market share(from poaching by other OPEC members). Other collateral damage to Iran economy and Putin are icing on the cake as their foreign policy is at odds with Saudi. Once the cheaters fall in line, OPEC will take some action to defend price.

 

[Lakewood90712]

Tell your grandson to read "The Prize" or watch the 8 part video on you tube , then explain the commodity business, and highly leveraged business operations.That is if you can . I only have a peripheral understanding of the subject.
Not a simple answer. I don't think most teenagers would care. If he does, I see a career in finance , or oil & gas on the horizon.

 

[unclemick]

42! I saw the movie.

heh heh heh - perhaps the other answer is yes.

 

[aja8888]

99% of oil producers are making money even at oil at 10 dollars a barrel. For example Saudis produce oil at cost of 2 dollars a barrel.

Similar logic applies to majority of producers. That means Frackers producing oil at cost of 40 dollars a barrel in the way have lower cost then Saudis.

eta2020:

First statement - please verify this production cost ($2 barrel).

Second statement - Who, specifically, are "Frackers"? - since oil companies have been fracking (fracturing oil-bearing formations) wells for over 60 years in this country.

Note to poster: Saudi's are not bringing on new production but producing old fields using waterflood techniques since they are in decline. We have a mix of that old and new in the U.S. You can't easily compare Saudi production costs against our "several hundred" U.S. oil producer costs.

Imolder - Pump prices are based on refinery runs and input costs, which are all over the lot right now. Then throw in broker costs and profit margins...

 

[eta2020]

eta2020:

First statement - please verify this production cost ($2 barrel).

Second statement - Who, specifically, are "Frackers"? - since oil companies have been fracking (fracturing oil-bearing formations) wells for over 60 years in this country.

Note to poster: Saudi's are not bringing on new production but producing old fields using waterflood techniques since they are in decline. We have a mix of that old and new in the U.S. You can't easily compare Saudi production costs against our "several hundred" U.S. oil producer costs.

Imolder - Pump prices are based on refinery runs and input costs, which are all over the lot right now. Then throw in broker costs and profit margins...

For example:

"Yes, it costs Saudi Arabia only about $2 a barrel to get crude CLF5, +0.02% out of the ground. But analysts insist the Saudis’ real pain point is more than $100 a barrel — more than $30 higher than its price now — because of what they do with the money once they have it."

OPEC is wrong to think it can outlast U.S. on oil prices - MarketWatch
http://www.reuters.com/article/2009/07/28/oil-cost-factbox-idUSLS12407420090728

But 2 dollars 6 dollars it remains that they have low costs to produce it but lot of social programs to cover with it. Most articles are in range 2-6 dollars (As I google production cost of oil in Saudi Arabia)

US company pumping oil in South Dakota does not have Social programs that it needs to fulfill.

I may be wrong . This is what I read.....

It is nice to read that production cost is much higher in Russia. That is about 40 dollars a barrel.

 

[aja8888]

For example:

"Yes, it costs Saudi Arabia only about $2 a barrel to get crude CLF5, +0.02% out of the ground. But analysts insist the Saudis’ real pain point is more than $100 a barrel — more than $30 higher than its price now — because of what they do with the money once they have it."

OPEC is wrong to think it can outlast U.S. on oil prices - MarketWatch
FACTBOX-Oil production cost estimates by country | Reuters

But 2 dollars 6 dollars it remains that they have low costs to produce it but lot of social programs to cover with it. Most articles are in range 2-6 dollars (As I google production cost of oil in Saudi Arabia)

US company pumping oil in South Dakota does not have Social programs that it needs to fulfill.

I may be wrong . This is what I read.....

It is nice to read that production cost is much higher in Russia. That is about 40 dollars a barrel.

Articles are great to read, and no doubt that the Saudi's have low lifting costs, but any cost data you see is not out of the mouths of the Saudi's as they have never given production cost data or proven reserves data to anyone. I have done oil and gas projects for Saudi Aramco and worked closely with their American-educated engineers and cost/reserve data is not available.

 

[bld999]

" not out of the mouths of the Saudi's as they have never given production cost data or proven reserves data to anyone."

Make a lot of sense to me, what football team or any other competitive entity shares strategic and sensitive data with competitors?