Oil and Gasoline Prices
Instead of the predicted $5.00 a gallon gasoline this summer it looks like we may have $3.00 a gallon instead. The sinking economy is of course responsible for the sinking oil and gas prices but there is a floor – companies won’t produce is they can’t make money. I think we are at the floor for crude oil prices. The last couple of days the price for WTI has dropped below $80.00 bbl.
It would appear the floor for crude is about $80 bbl. There are reasons for this. The non conventional sources need $80.00 bbl to be profitable. That includes deep water drilling, fracking and the tar sands. In addition The exporters like Saudi Arabia need $80 to $100 bbl to finance their social programs that keep people from revolting. Here in the US we can’t afford to pay as much as they do in the rest of the world because we use it less efficiently and it’s world demand that determines price. So we may see $3.00 a gallon gas in the fall but don’t expect it to go much lower or stay that low very long. The producers are not going to keep producing when they are losing money.
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I’ve always thought oil and gas prices are one area that the left has an edge on.
If prices go up under a Democratic President they can blame it on “evil oil companies” and if it goes down they can take credit (even though in most cases the ups and downs have little to do with govt policy).
By contrast if prices go up under a Republican the left can attack them for not “controlling the oil companies” and if they go down it can be dismissed as a trick for elections.
Of course there are other areas where the reverse situation is true.
Yes Patrick there is politics involved but that’s not the issue. The real issue is the cheap oil is history. We can attempt to adjust to the reality that it’s no longer the 50′s, 60′s or 70′s.
Producers are losing money if crude goes lower than $80… really???
I’ll admit that I’m no expert, but that is really hard for me to believe.
Americans spoke, wanting President Obama to lower the gas prices. They got their wish with an economy heading back into recession!
Fossil fuels won’t last forever. Even the unversed and apathetic have to realize this. Alternative dabbling around the edges is encouraging and makes for comforting stories, but we are still, for all practical purposes, saying (expletive deleted) you to future generations. Of course our approach to energy is only one example of our shortsightedness. Apologies for drifting away but it’s interconnected and goes to the big (if not immediate) picture.
Yes Zephyr, fossil fuels are limited and robbing from our future generations.
But remember, it is not just the conservatives that think fossil fuels are the only way to produce energy. Try building a wind farm or a solar farm and tackle the environmental issues they take on.
Get government involved and it waste money on programs that do little good, instead of funding infrastructure so those that can build a wind farm in the middle of Nowhere USA will have the transmission lines to move electricity from the farm to the city.
And when talking about $3.00 per gallon for gas, compare the cost per mile when gas was a buck fifty and cars got 15 mph to the cost now and the mph cars have provided over the past 5 years.
I am quite possibly the only one here who owns an oil well.
My mother’s family had land north of Fort Worth, Texas. Because the land traced back to a Spanish land grant we owned the mineral rights to it. Most Texas landowners don’t own the mineral rights to their land.
We have a mature, small, field. It requires some secondary recovery, pumping steam and chemicals into a second well to increase the amount of oil pumped. I would estimate the cost at 15 to 20 dollars a barrel, operating costs, capitalization would only add a couple of dollars to it because most of the capital costs have been fully depreciated.
I would estimate the cost of production in a place like Saudi or Iraq to be no more than 2 dollars a barrel, maybe double that including capitalization, the oil there is relatively shallow and the large fields return economies of scale. In a place like Venezuela you are talking about smaller and deeper oil requiring secondary recovery, so the costs are higher, close to the 15 to 20 dollars a barrel I pay. Deep, off shore oil production costs with capitalization can run into the 30 dollar a barrel range. The oil sands in Alberta and Australia I’ve seen estimated to be in 60 dollar a barrel range with capitalization being the highest component of the cost.
At $80 dollars no one is really being pinched too hard.
Thanks Merkin, I wondered about the actual costs.
Patrick– I believe that when prices started climbing a few months ago, many Republicans blamed President Obama for the increase, and he explained that he has no control over them.
When have you heard him taking credit for the price drop??