Oil prices crash

[K. A. Pital]

It's a bit of a race to the bottom situation, where no oil producer can afford to cut production in this environment, as his share will be immediately captured by other oil producers. That's why Russia, the US and Saudi Arabia are hitting production records while the price keeps going down.

[Arthur_Tuxedo]

A year or two ago I heard on NPR that this would happen due to fracking techniques learned in natural gas production being applied to oil, and that this would cause the price of gas to fall to 99 cents and the US to stop importing oil and start exporting, but that the production boom would only last 5-10 years. Is any of that still true, or have we already seen most of the price drop / production increase?

[Crown]

I'm sorry if this has been posted, I've read through the thread but didn't see it, I was wondering if anyone can explain the following to me;

There is a general consensus that Saudi Arabia is hurting the least with this price drop for a variety of reasons, the two biggest of which are mountainous reserves of foreign cash and the fact that it's pretty much the most efficient pumper (of oil dirty gits). What I also understand is that Saudi Arabia has about a 13% share of the oil pie, which is roughly the same as the US's and Russian (basically there all within a percent of each other).

From what I have read (if I understand correctly) there is also a general consensus that Saudi Arabia maybe 'driving' this. So assuming all the above are true (you know roughly), here is my question; has anyone come up with an explanation/mechanism that can adequately show how someone who only has a 13% market share can drive the price of oil drop by 50%? Because I don't get it.

[Simon_Jester]

I would think a big part of it is that the demand for oil is less... elastic, I think is the word, than that for a pure luxury commodity. People don't suddenly burn twice as much gas if the price drops to half of what it was, nor will they burn half as much gas if the price doubles. People will take most of the money spent on cheap gas and spend it on other things instead... plus, the stuff is very very fungible so it's easy to undercut your rivals by charging a few cents less. So there's an incentive to race to the bottom.

And when gas or fuel oil gets expensive, the stuff is treated as a necessity and buyers can potentially get into bidding wars until the price skyrockets out of reach of the 'appropriate' number of low-end buyers who don't have that kind of money. In which case there's an incentive to race to the top.

Either way, small changes (positive or negative) in the oil supply can have a major effect on the price point.

Unless I'm getting my equation-smithing wrong.

[Fingolfin_Noldor]

I would think a big part of it is that the demand for oil is less... elastic, I think is the word, than that for a pure luxury commodity. People don't suddenly burn twice as much gas if the price drops to half of what it was, nor will they burn half as much gas if the price doubles. People will take most of the money spent on cheap gas and spend it on other things instead... plus, the stuff is very very fungible so it's easy to undercut your rivals by charging a few cents less. So there's an incentive to race to the bottom.

And when gas or fuel oil gets expensive, the stuff is treated as a necessity and buyers can potentially get into bidding wars until the price skyrockets out of reach of the 'appropriate' number of low-end buyers who don't have that kind of money. In which case there's an incentive to race to the top.

Either way, small changes (positive or negative) in the oil supply can have a major effect on the price point.

Unless I'm getting my equation-smithing wrong.

Eh. No. I think more like there's too much supply and demand may have plateaued instead. Of course if demand goes up too high and supply drops, then the price will rise.

[Simon_Jester]

Well yes- the point is that demand does plateau, at least in the short term.

Most of our day to day consumption of oil-based fuel is non-optional; I'd still be burning the same amount of gasoline if it cost six dollars a gallon, because I'd have to, at least in the short term. In the long term cheap gas prices over a long period can gradually create an incentive to consume more (i.e. drive farther, or use less fuel-efficient engines). But that can take years, and I doubt the current price collapse can last long enough for that to matter.

[Lolpah]

Eh. No. I think more like there's too much supply and demand may have plateaued instead. Of course if demand goes up too high and supply drops, then the price will rise.

Yes, but the inelasticity of demand for oil may be a reason why the price change is so dramatic.

[Fingolfin_Noldor]

Eh. No. I think more like there's too much supply and demand may have plateaued instead. Of course if demand goes up too high and supply drops, then the price will rise.

Yes, but the inelasticity of demand for oil may be a reason why the price change is so dramatic.

Well, there is the issue that oil speculation is the sort of thing that meddles with the usual supply/demand curve.

[Starglider]

This is causing massive (trading) volume spikes in currency and commodity options markets, and a significant increase in spot volatility as well. Hard to say how much indirect contribution it is making to the the recent increase in bond and stock volatility, but there's obviously a big direct impact in the energy sector. Good for me because I'm currently working on (grid compute apps for) next-generation consolidated bank risk modelling, and everyone is looking around nervously and quietly bumping up the priority for that.

[Mr. G]

I also regret my frenetic advocacy over peak oil fears. At the time I was very susceptible to being scared by other people and it making me hyperactively focused on a topic. As it turned out, the optimistic view that economic factors would drive technology to achieve total oil exploitation turned out to be correct, mercifully. Because of this we have approximately 400% more oil than was previously anticipated and peak oil is therefore probably 70 - 80 years a way. Due to the simultaneous massive increase in gas consumption and reduction in coal consumption, use of coal for power is probably going to end in the next 50 years when in combination with renewables, such that when peak oil finally happens, it won't happen, because F-T process extraction of hydrocarbons from coal will further prolong that energy economy.

Not taking into account the fact that coal is today a more important energy source than oil (at least it appears considering global coal consumption is at nearly 8 billion tons, versus 4 billion tons for oil, which have about as much energy as 6.5 billion tons of black coal). And global coal reserves are enormously larger than oil reserves.

What happened was that the increase in oil prices increased the amount of resources that went into research on oil production, which increased global oil reserves. However, one thing to expect in an ideal economy is that decision makers would already anticipate such increase in oil price and invest in technology for energy production, increasing supply and preventing these spikes in prices.

Another thing to take into account is that OPEC might be interested in reducing investment in renewable energy technology and so is dumping oil into the global economy to make renewable energy too expensive.

That said, whether or not there is enough energy to sustain a transhumanist future without want on this planet alone is a much more questionable subject, because absolute demand for energy is increasing geometrically in modern society and there are absolute constraints. But that's neither here nor there, which is that I felt the need to comment on my name being brought up, and the need to state I pretty much desperately regret everything I've ever done on this forum and wish people would forget me. Thank you.

Demand for energy is not increasing geometrically in modern society, in fact, it's decreasing in countries like Germany and Japan and stagnating in the US. Demand for energy is increasing in countries like China and India, which are industrializing. Though one thing to think about now, is that the world is a a cusp of becoming a middle class world, now that the bulk of the combined population of China, Brazil, Russia and India will be middle class in a few years, albeit a more modest middle class compared to the US's. This means that demand for energy in the future will increase at slower rates considering also that global population will tend to stabilize (in Europe, US, Latin America, China, Russia, East Asia women are already having fewer than 2 kids) and most countries are already reaching economic maturity.

[Borgholio]

Interesting interview with a Saudi prince about oil prices. Also touches on Muslim terrorism too.

http://www.usatoday.com/story/money/col ... /21484911/

[Raw Shark]

Fracking paused on gas wells in Western Colorado
By Nancy Lofholm
The Denver Post
Posted: 01/23/2015 05:06:41 PM MST Add a Comment | Updated: 15 min. ago

William Woody / Special to the Post ** FILE** At the base of the Roan Plateau, dozens of gas wells dot the landscape south west of Rifle along the I-70

GRAND JUNCTION — The largest natural gas developer in Colorado has instituted a fracking freeze in the Piceance Basin of Western Colorado in response to dropping prices for natural gas and oil.

WPX Energy announced in a blog post this week that it will "pause" the completion process for about 20 wells that have already been drilled in the Piceance Basin. That means the wells will sit idle for the time being and won't undergo the hydraulic fracturing needed to release gas from underground formations.

"We are looking at ways to save on costs," said WPX spokesman Jeff Kirtland.

WPX employs 380 people in Colorado; the company hasn't announced any layoffs at this time. The stop to fracking is expected to have more of an employment effect on contractors and service companies that are involved in that portion of the well development process.

Halliburton and other large oilfield service providers, Schlumberger NV and Baker Hughes, Inc., provide those fracking-related services.Those companies announced this week that they are laying off thousands of workers, but the companies have not specified where those layoffs will take place.

Kirtland said WPX is trying to negotiate lower prices with the service providers for well completion and, if successful, that could restart some fracking.

In the meantime, WPX is continuing to drill new wells in the Piceance where the company currently has more than 4,400 wells. The company has eight drill rigs operating in Garfield and Rio Blanco counties — down one from 2014.

The second-largest producer in Colorado, Encana Corp, put a halt to drilling in the Piceance last year.

Kirtland said WPX is still formulating its company strategy for 2015. The company has an investor telephone meeting on Feb. 26 and the plans for the coming year could be announced then.

"Our overall 2015 plans are still progressing. We're working on the details, such as considering how many rigs to run, etc.," the WPX blog post stated.

Nancy Lofholm: 970-256-1957, nlofholm@denverpost.com or twitter.com/nlofholm

So, this happened, surprising nobody. On the one hand, it sucks that gas prices are up $0.10/gallon overnight locally, and that thousands will be laid off because of all this. On the other hand, I see fracking as, at best, a massively-flawed stopgap measure and can't feel too bad about seeing it get an economic punch in the nuts.

[Mr. G]

Prices are rising again now. After reaching 45 bucks, now they appear to be going to 55 bucks. I guess 100 dollar barrel was above the long run "equilibrium" value. Well, on average over the past 40 years would be around 55 dollars:

http://www.macrotrends.net/1369/crude-o ... tory-chart

[His Divine Shadow]

Diesel jumped from €1.199/l at it's lowest which was on monday, to €1.279 at the same station today. Lowest price I found today was €1.249 per liter, prices sure take a while to fall, but they go up the very second something changes upwards.

[Elheru Aran]

I've noticed the upward tick too. In my corner of the US (30 miles south of Atlanta), we had a pretty decent decline-- down to 1.49 in some neighboring areas with a discount card! The local gas station down the street from me got as low as 1.86, but after the uptick it's now at 2.07. Which is still pretty damn decent considering we were getting above three bucks a gallon before the decline started...