Read? Here Is A Simple Way Of Seeing Who Gets Screwed Most As Oil Tumbles
Oil is crashing. On Thursday, WTI crude oil was falling again, moving back below $61 a barrel.
Much has been made of the "breakeven"
oil price for the world's drilling projects. This is the level at which
the price of oil covers the cost of extracting the oil.A simpler way to look at when the biggest oil players will start feeling the squeeze from lower prices is the "cash cost."
"Without OPEC action, an outage, or other response, cash cost is the only true floor," Morgan Stanley analyst Adam Longson said.
Cash cost is basically what it takes to keep oil production going, not what it takes to make oil production profitable or for a government to hit its budget projection. If you drop below your cash cost on a project, you've got to turn out the lights.
As you can see on the far right,
the Canadian oil sands and the US shale basins are very expensive to
tap. Meanwhile in the Middle East, the Saudis, the Iraqis, and the
Iranians basically stick a straw in the ground, and oil comes out.
The recent story in the market
has been that a supply glut has pressured oil prices, and in response
some expected OPEC to announce a production cut at its Thanksgiving
meeting. That didn't happen, and Longson notes that it isn't as simple as slashing production to combat low prices.
Longson's mention of a commodity without a cartel also comes as Saudi oil minister Ali Al-Naimi said on Wednesday that the market — not the OPEC cartel – was in control of the oil market.
And these comments imply that this chart from Morgan Stanley, showing cash costs for oil projects around the world, might be the place to find out when things will really ugly in the oil market.
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You have stocks in O &G?
ReplyDeleteCan start to mentally prepared for oil to fall to $35-$40/bbl.
Kep Corp $5?
SCI $3?
DUBAI, United Arab Emirates (AP) -- The secretary-general of OPEC is urging Gulf Arab nations to continue investing in oilfield development despite the sharp slide in crude prices.
ReplyDeleteSpeaking Sunday at a forum in Dubai, Abdullah al-Badri says the investment will help prevent a shortfall in supply once demand picks back up in the future.
Oil prices have slid sharply in recent weeks, with benchmark U.S. crude settling at $57.81 a barrel last week.
Al-Badri says OPEC has no target price it seeks for a barrel of oil. He says the United States will continue to rely on Mideast petroleum despite rising domestic shale oil production.