North sea oil industry on verge of collapse as prices drop
57 replies, posted
Wasn't Alex Salmond campaigning for independence with the oil industry as a big economic crutch?
Well avoided Scotland.
[QUOTE=Flapadar;46748649]Fracking is expensive. You can't just shove normal gauges down when fracking ( funnily enough, people try. Then the equipment fails under the pressure). New equipment, more investment.[/QUOTE]
There's still no reason to suggest that US oil production will decline massively. The growth will slow down and they may produce a bit less, but it's not going to end the shale oil and fracking revolution.
It will definitely stop a lot of the new wells being built, but it's not going to stop a good number of the existing ones (some of which can remain very profitable with low oil prices).
OPEC is irrelevant and crumbling to pieces right now, and now that they're overproducing, a good number of their member states are starting to fall apart or have huge economic problems. The Saudis can handle it fine, but if countries like Venezuela collapse then that will stop some of the oil flowing.
[IMG]https://dl.dropboxusercontent.com/u/10518681/Screenshots/2014-12-19_11-41-21.png[/IMG]
It's sitting around $60 per barrel right now. Pretty much all the countries in OPEC are losing money right now - Saudi Arabia is playing the tough game by voting to keep supply the same so as not to lose market share for when price inevitably bounces back up again.
It's just a case of who can survive the longest: if the US supply drops due to companies going out of business, then OPEC will still have its market share AND the price will go back up as demand meets supply. But, time will tell. Demand is tapering out all around the world as we look to alternative energy sources.
[QUOTE=Deng;46748702]There's still no reason to suggest that US oil production will decline massively. The growth will slow down and they may produce a bit less, but it's not going to end the shale oil and fracking revolution.
It will definitely stop a lot of the new wells being built, but it's not going to stop a good number of the existing ones (some of which can remain very profitable with low oil prices).
OPEC is irrelevant and crumbling to pieces right now, and now that they're overproducing, a good number of their member states are starting to fall apart or have huge economic problems. The Saudis can handle it fine, but if countries like Venezuela collapse then that will stop some of the oil flowing.[/QUOTE]
Not to mention that many of the frackers have entered into contracts that guarantee them the prices that they got when building the wells for at least a couple of years, which will help to hedge against the risk of oil prices falling as they are doing now.
[QUOTE=ilikecorn;46746623]NO NO NO, you have to understand they're EXECUTIVES! THEY SIT IN MEETINGS ALL DAY, they HAVE to have an exorbitantly priced hotel room, and HAVE to receive HUGE bonuses, because you see, they go to MEETINGS. (I totally agree, they need to suck it the fuck up and make some cuts, they'd be surprised how much profit they'd be making if they'd stop pissing it away on execs".[/QUOTE]
It's not so simple. If these guys don't get their benefits, many of them can just up and leave for another company or industry even. It's a problem with the new breed of management executives, who are seen to have broadly transferable skills. Experience in one industry seems to imply experience in another, for some reason.
[QUOTE=Lf751;46746710]They probably are still making profits, the amount of times I've heard companies worried and 'paniking' over price drops so they raise their prices and what a surprise they still made a big profit over the year, do they drop the prices back down? no they keep them up still thinking people are to stupid to know any better.[/QUOTE]
That's called business. They're there to make a profit.
Also a fall in profit but still making profit means the company loses value and share prices drop. Which is why they're panicking
its 2.05 here in west michigan, i've never seen it this low.
$2.27/gal today. I drove a V8 truck for a while before getting my car, spending about $80/wk on gas.
Now my car doubles the truck's MPG, and gas is down over 30%. I drive more now at work, but i still spend about half as much as I did during the summer
[QUOTE=Flapadar;46748412]To everyone saying $60/barrel is a lot or enough, consider the price of water. A litre of petrol a few months ago cost £1.35. A litre of bottled water at my university costs at least £2.
A barrel of oil is 158 litres, so $0.37 / litre. That's nothing. If this keeps up lots of jobs will disappear and lots of economic activity will simply shift to the saudis instead of here.[/QUOTE]
You're right about the price comparison, but that's some crazy expensive water! I can get a 1.5L battle for right around $1 pretty much anywhere.
[QUOTE=Memobot;46748684]Wasn't Alex Salmond campaigning for independence with the oil industry as a big economic crutch?
Well avoided Scotland.[/QUOTE]
Yes I'm sure after the first temporary bump in the road they'd be clambering to get back in, just like every other previously british dominion in the world
EDIT: Colour note: In Argentina, 1 gal is at....30 pesos...which means...30/13....2,3 dollars
[QUOTE=Buck.;46748598]Can someone explain to me why oil prices fell so much?
Were they artificially inflated or something before? Or did we run into huge oil deposits or something?
I honestly can't wrap my head around how a finite resource can drop in price so quick when we aren't creating more of it.[/QUOTE]
First of all, every resource is finite in space. In time, they may be renewable or not.
Now, when it comes down to non-renewable resources such as Oil, we don't have access to it instantly.
It takes time, effort, manpower and money to extract it.
Ok, having said, why is the price dropping so fast?
Because a couple of years ago, the US started implementing a new solution for oil extraction.
The famous Shale Gas/oil, via the fracking method.
In an extremely non-engineering analogy, fracking is similar to how Gold is extracted from mines nowadays.
You just have a crap ton of oil underneath the earth stuck between huge rocks, so what they do, is drill a hole, put in a hose and start pumping a (fucked up) mix of chemicals, which desintegrate the rock and water, then they separate water from oil.
Mind you, underground water deposits end up contaminated. Check up videos in youtube of people turning on the taps, lighting a match and then setting the water on fire (!).
So, back to the econ perspective:
This new method of extracting, allowed the US to bump its oil production which was already well into the decline, as shown by this charter:
[IMG]http://www.aei.org/wp-content/uploads/2014/01/oilweekly.jpg[/IMG]
Ok, so, basically, we've got now more oil into the markets, therefore, more competition between oil companies.
Buck., meet the old friend in the oil neighbourhood, OPEC. OPEC, meet Buck.
[url]http://en.wikipedia.org/wiki/OPEC[/url]
They are basically a Cartel organization formed by third world countries that produce oil. They set up prices and supply so as to keep income high.
It's the same shit De Beers did with diamonds during 100 years.
With oil coming in from the US, more oil projected at future from US oil companies in foreign countries such as Argentina, that have a crapton of shale gas/oil reserves and other standard oil companies from around the world, supply saw a rise, therefore, being a threat to the OPEC
(Read about Vaca Muerta BTW)
So what does the OPEC do in this case? We start selling more of OUR oil, at cheaper prices, so as to force the producers of Shale Oil, sell it at lower prices, THEREFORE, diminishing its profits, THEREFORE forcing them to choose between getting out or keep going on.
A little clue: They will never get out.
Why?
Because it's a matter of state policy, from the US government. They are, in political terms, putting a leash on any oil producing country that doesn't follow their guidelines (Namely, Venezuela, Iran, and half the other world that produces Oil).
So no matter how expensive in terms of benefits Shale oil gets, the US will continue to support it.
And where's the problem in all this? Countries which don't have such a strong foreign policy don't get to support their companies like that (Namely, UK), so if they are affected by the price drop, bad luck then m8.
all i can say is
sorry britain
as for OPEC trying to shut down shale, the problem is natural gas and the oil produced from fracking is HERE in america and not in saudi arabia, whatever they do, oil made here is cheaper from a logistics standpoint, a barrel of crude sitting in north dakota is easier to get to texas than a barrel sitting in saudi arabia
So the saudis are selling their non-renewable source of almost all of their income for an incredibly low price. I work at Domino's and I can buy a gallon of premium gas for less than a customer can buy a 2-liter Coke here. And damn near everyone in the world is buying as much as they can.
Consider this: You already want to buy this cheap-ass gas. And that cheap-ass gas you buy is gas that the Saudis cannot ever get back in (literally) a million years. By filling up your tank because it's easy now, you are tearing time off of the lifespan of that slave-owning, terrorism-funding hellscape of a civilization.
$1.37 in Texas
Blame usa for forcing the Saudis to produce more than the demand.
Filled up my entire tank today with premium gas for less than $35. It's been years since premium has been below $3 a gallon. I don't care if they suffer. Lower gas prices are amazing for me.
[QUOTE=Flapadar;46748623]Saudi ramped up production to muscle out the US fracking industry.[/QUOTE]
Not really, in fact saudi has no idea how much oil they even have left.
This is really a battle for market share between the shale oil producers of the United States and Western Europe and the oil producing kingdoms of the Middle East. For beneficiaries of this competition like the Philippines, let us hope this war will continue for a long, long time.
[QUOTE=Tmaxx;46746248]please continue dropping. this is the best thing since ever.[/QUOTE]
Not to shit on poor people, but cheap gas is a good way to get people to consider buying inefficient cars.
You assume people are taking the money they would have spent on gas and buying cars? Besides brand new suvs and trucks are much much much more efficient than they used to be.
[QUOTE=FurrehFaux;46746540]How about instead of becoming increasingly reliant on oil, we actually work to make a shift to clean energy. I wouldn't have a problem with the world's oil industry collapsing.[/QUOTE]
Of course you would, since you arent dependant on it
I would like to thank everyone in this thread who broke it down so the cause and effects of the oil price changes were easily understandable.
This is one of the most educational threads I've ever had the privilege of reading.
[QUOTE=Del91;46756658]You assume people are taking the money they would have spent on gas and buying cars? Besides brand new suvs and trucks are much much much more efficient than they used to be.[/QUOTE]
Even cheap older vehicles aren't half bad.
A late 90's Jeep Cherokee - we had one with the I6 that got 19mpg, that was with 240k miles on it. We paid $1200 total for it, after repairs were done.
Pickup trucks? Full sizes never really got more than 12-13mpg, especially when they are older.
A mini-truck (s10,Ranger, Nissan, etc) gets anywhere from 15-30mpg.
Not a ton of people go for the gas hogs of the old days, unless its a weekend toy or work rig.
I remember in 2010 when my family got the new Hyundai Elantra, 20$ would fill up about half a tank. Now since im driving it, 20$ almost fills the tank to full. And that can easily last me for a week.
[QUOTE=DocWalrus;46755428]You already want to buy this cheap-ass gas. And that cheap-ass gas you buy is gas that the Saudis cannot ever get back in (literally) a million years. By filling up your tank because it's easy now, you are tearing time off of the lifespan of that slave-owning, terrorism-funding hellscape of a civilization.[/QUOTE]
Correct me if I'm wrong, but doesn't gas spoil? As in you cannot stockpile it because it'll just settle and become unusable in engines?
[QUOTE=GoDong-DK;46756374]Not to shit on poor people, but cheap gas is a good way to get people to consider buying inefficient cars.[/QUOTE]
Fuel efficiency never really took off here like it did in other places anyway. It's gotten better, but Europe and maybe parts of Asia still have more efficient vehicles than we do.
[QUOTE=Tmaxx;46746248]please continue dropping. this is the best thing since ever.[/QUOTE]
No it's horrible, my bro lost his job cause of this..
Also, gas prices dropped almost 40 fucking cents within a month, this will trickle down throughout the economy, first with the oil industry, then the food industry, and so on. The cost of production is way higher than the gas is worth at the moment
[QUOTE=Sableye;46754026]all i can say is
sorry britain
as for OPEC trying to shut down shale, the problem is natural gas and the oil produced from fracking is HERE in america and not in saudi arabia, whatever they do, oil made here is cheaper from a logistics standpoint, a barrel of crude sitting in north dakota is easier to get to texas than a barrel sitting in saudi arabia[/QUOTE]
Not sure, some oil tankers carry between 70,000 barrels and 190,000 barrels per trip so say it costs $70,000 (wild guess, no idea really) then that means it only costs $1 more per barrel to get it to you.
So if you think how much logistical and employment costs there would be getting the oil to you yourself the trade-off might now be so great, I have no idea how much a pipeline costs so can't say on that regard but I suppose if you contract a ship to send you oil for $71bbl~ when oil is $70bbl there's not much loss.
That's just my personal opinion of course from limited knowledge on the subject
Hopefully this price implosion is what finally convinces oil companies to put some serious investment into alternative energies. Companies like BP have rebranded themselves to imply a commitment to something other than oil, but haven't actually delievered on it. Maybe it's time to do so.
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