Saudi Arabia is killing the Russian economy in its fight to control oil prices

[Madali]

I really don't get the "put the shale oil producers out of business" argument. The shale oil will still exist. As soon as the price goes up, the current crop (or a new crop, if those guys are out of money) steps up and turns the wells back on.

Shale oil changed the game. Done deal, it's not going away. The price of oil isn't going back up to $100/barrel any time soon. The tech continues to get better. The human race isn't going to forget how to extract shale oil. Ergo, shale oil will limit the price of oil for the foreseeable future.

There was an article which said that smaller shale companies would go out of business and their assets would be bought at cheap rates by bigger shale companies which would bring their production prices down!

So you are right. Shale probably would make profit even at current costs.

No. The argument does have weight. That's because shale oil wells have to be pumped out fully within 1-2 years of digging. So, if investors invest in shale oil with project break-even cost of $80 and oil remains at $60 for not 2-3 years, there's no way they can turn profit.

If a sizeble chunk of them lose money, the sector would attract lesser investment and hence the assertion !

There is no way break even is 80 USD. It worked make sense even at 100 at that cost. In the middle East, cost of oil is between 1 to 5 USD per barrel, so I would guess at most, shale would be around 20 probably or maybe 30.

 

[Azeri440]

There is no way break even is 80 USD. It worked make sense even at 100 at that cost. In the middle East, cost of oil is between 1 to 5 USD per barrel, so I would guess at most, shale would be around 20 probably or maybe 30.

1 to 5 USD? Lol the cheapest production cost currently stands at 12 or a little less than that.

in North America production costs are 30+

 

[Madali]

1 to 5 USD? Lol the cheapest production cost currently stands at 12 or a little less than that.

in North America production costs are 30+

Here,
FACTBOX-Oil production cost estimates by country| Reuters

The operating cost (stripping out capital expenditure) of
extracting a barrel in Saudi Arabia has been estimated to be
around $1-$2, and the total cost (including capital expenditure)
$4-$6 a barrel.

 

[Azeri440]

Here,
FACTBOX-Oil production cost estimates by country| Reuters

The operating cost (stripping out capital expenditure) of
extracting a barrel in Saudi Arabia has been estimated to be
around $1-$2, and the total cost (including capital expenditure)
$4-$6 a barrel.

Things become more complicated when you turn to Saudi Aramco and its production at, say, the supergiant Ghawar oilfield. Western experts say that Saudi production costs average $10-$20 a barrel, give or take a few dollars either way. Of course, there are no hard public numbers when it comes to most Saudi oil data, only estimates from industry experts.

The real reason Saudi Arabia can afford a price war against US shale - Quartz

 

[Providence]

There was an article which said that smaller shale companies would go out of business and their assets would be bought at cheap rates by bigger shale companies which would bring their production prices down!

So you are right. Shale probably would make profit even at current costs.



There is no way break even is 80 USD. It worked make sense even at 100 at that cost. In the middle East, cost of oil is between 1 to 5 USD per barrel, so I would guess at most, shale would be around 20 probably or maybe 30.

So do you have the data of the no of shale oil companies who went insolvent ?

And the $80 quote was a number to make a point. It may or may not be the case

 

[nvKyleBrown]

No. The argument does have weight. That's because shale oil wells have to be pumped out fully within 1-2 years of digging. So, if investors invest in shale oil with project break-even cost of $80 and oil remains at $60 for not 2-3 years, there's no way they can turn profit.

If a sizeble chunk of them lose money, the sector would attract lesser investment and hence the assertion !

Still doesn't matter. You know where the oil is, if the price goes up, you drill and pump. Done. Shale oil wells can be put into place very quickly. So, no matter how low the price of oil gets, shale will still be there. If the price is low, no shale will be pumped (but none would be needed, the price is already low). If the price goes up, those wells go in.

Ergo, the price cannot rise above $80 or so. No matter how long you "keep them out of business" the technology is still there, and the oil is still there, and as soon as the price shows signs of rising, the investment will happen.

 

[Red Wolf]

Still doesn't matter. You know where the oil is, if the price goes up, you drill and pump. Done. Shale oil wells can be put into place very quickly. So, no matter how low the price of oil gets, shale will still be there. If the price is low, no shale will be pumped (but none would be needed, the price is already low). If the price goes up, those wells go in.

Ergo, the price cannot rise above $80 or so. No matter how long you "keep them out of business" the technology is still there, and the oil is still there, and as soon as the price shows signs of rising, the investment will happen.

OPEC doesn't have to kill shale oil, or oil sands, producers. It only has to make the prospect of investing in them unpredictable and, hence, unattractive for large institutional investors. If sovereign and pension funds start investing in shale oil, you have a serious problem at your hands. If the market is limited to retail investors or high-risk hedge funds, the overall market share of shale will remain small. And once interest rates go up, even retail investors will seek less risky options leaving the industry to mostly hedge funds.

The whole discussion around high start-up and operating costs for shale only complicate investment decisions. Even things like life expectancy of an oil well is actually quite difficult to determine for shale oil wells. On the other end of the spectrum, there are oil wells in Texas that have been producing oil for over 100 years which allow the producer to plan long-term. Shale doesn't give you that opportunity.

In any case, there is a price attached to being a rebel in commodities market. Its safer to go with the status-quo.