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Banned-for-life

Joined: 12/03/2016 Posts: 383
Likes: 586


Some basic points that are fundamental to what’s going on in Oil&Gas..


The price of oil is determined by the cost of the last barrel needed to meet market demand, not the average. When demand is not being met the price goes up to incentivize exploration and development to bring more to the market.

Not all oil resources are equal. The Saudia’s can develop most of there resource for less then 20 dollars a bbl. For US producers the cost structure is completely different, ranging from 40 at the low end to more then 100 at the high end. Much of the leased land that CS complains about falls into the high end of that range and will never be developed.

The relatively high cost of production and lack of resource for US oil companies prevents them from dictating a market price. They can however disrupt the Cartel from doing it. The growth in US production since 2010 is the primary reason oil prices dropped from a 100 bbl to 60 bbls. At current production levels, the US no longer has the same influence with the end result being the Cartel can now sway prices without fear of losing market share.

There are two primary reasons why US companies have not boosted production back to pre-Covid levels, neither of them involves greed. Reason one, funding a billion dollar development will take more then a decade to breakeven. It requires a strong belief that prices, demand, and the political climate in the future will remain favorable. Biden has canceled a pipeline, ban leasing on federal land, proposed increases taxes and regulations, and now is threatening to ban exports. Despite favorable prices its a negative business environment on all other accounts and not one in which companies want to make big bets on at this time. I know this to be true as I have spent several decades working in the business and am involved in the decision making process as a technical contributor. Second major factor is capital markets have shifted investment into renewables or oil&gas developments in underdeveloped regions like Africa and South America where they receive much more favorable terms.



[Post edited by Banned-for-life at 11/13/2021 3:55PM]

(In response to this post by Bisonic)

Posted: 11/13/2021 at 3:41PM



+5

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