Thread: Oil Prices, Good News, For Awile Anyway

Originally Posted by bluesman7

Oil is fungible! A pipeline will have next to no effect on the global price of oil. If the price were to drop in the U.S. we would export it at a profit at global prices.

I don't know what you mean by fungible. There is cost to the right to drill (could be zero if you already own the land in US) cost of production and cost of transportation, those are pretty much fixed for a particular location and only technology shift can alter them in a meaningful manner (well, the cost of labor could fluctuate with the rest of the economy)

While undersupply can make some production profitable oversupply can quickly weed out those with higher production cost and shallow pockets to sustain production at a loss. So, the losers are generally going to be the small pawns who can't plan, as well as states like ND and Russia who failed to use the windfall profit of the upcycle living more hand to mouth instead of planning for the downturn.

A pipeline is a big upfront investment and when it competes with an alternative already in place, like in the keystone-xl case it's only justified if there is enough profit to ensure long enough use to recoup that upfront investment. At current prices that pipeline is not going to be built, but the political posturing in US over it has its own benefits and that's what has been driving the related hysteria.

The key element from the washington post article is:

The surplus oil production is a small percentage of global consumption, so it’s possible that a disruption in supplies in, say, Libya and an uptick in consumption in the United States, Europe and China could bring things into balance. But consumption isn’t just a matter of crude oil prices. Gasoline subsidies have been slashed in Indonesia and India, fuel efficiency standards are pushing U.S. carmakers, and Europe’s economy remains in the doldrums.

Originally Posted by gugi

I don't know what you mean by fungible.

In short, oil sells at global prices regardless of cost of production in any particular local. If oil is cheap in one area it moves to where it brings a higher price.

Your forgetting the south. I heard the Saudis say they are pulling back prices because of South America. (in a recent article I can't find now) They started the drop in a barrel months ago. The South is starting to boom so a glut will slow that supply down. Just thinking here but there are many factors that have brought the price down and many that will take it back up. Demand is the biggest thing to drive it up. Start eating away at those reserves and bada bing refined fuel will go right back to where it was no matter what the cost of oil is. I wish I could build my own reserve tank right now :<0)

No Clue what fungible means,all I know I when i can fill my tank for $50 instead of $ 90, thats a good thing

Originally Posted by 10Pups

Your forgetting the south. I heard the Saudis say they are pulling back prices because of South America. (in a recent article I can't find now) They started the drop in a barrel months ago. The South is starting to boom so a glut will slow that supply down. Just thinking here but there are many factors that have brought the price down and many that will take it back up. Demand is the biggest thing to drive it up. Start eating away at those reserves and bada bing refined fuel will go right back to where it was no matter what the cost of oil is. I wish I could build my own reserve tank right now :<0)

Yup, I believe the Venezuelans have the largest proven oil reserves, followed by Saudi Arabia, then Canada, then Iran and Iraq, Kuwait, the UAE, then the Russians....

Originally Posted by bluesman7

In short, oil sells at global prices regardless of cost of production in any particular local. If oil is cheap in one area it moves to where it brings a higher price.

Thanks, I understand. Pipelines lower the cost of transportation so they do contribute to the 'fungibility'. That's why it doesn't matter much if US imports from Canada or from Venezuela, if US shifts 10% of its import from one or the other China can do the reverse and the price stays the same.

The poor infrastructure is already hitting North Dakota - the high transportation costs mean that some producers have to sell at $30-$35/barrel if they want anybody to buy it, and that's below production cost in some places.

Originally Posted by pixelfixed

No Clue what fungible means,all I know I when i can fill my tank for $50 instead of $ 90, thats a good thing

That side of the equation is indeed good for you, but as somebody posted above may be there is a guy in canada who now has to spend $50 instead of $90 to power his gasoline lathe and make a brush. So the people in canada would rather buy from him the brush that he can now sell for 100CAD instead of from you because your brush costs 100USD=120CAD.

A political note....Warren Buffet owns BNSF which is the only way oil gets down from Canada now. He bought Obama a long time before that. THAT is why the pipeline is stalled. It sure isn't because of environmental concerns. When the Republicans take over everything again this will change. And maybe the climate will reverse yet again LOL.

Originally Posted by gugi

Thanks, I understand. Pipelines lower the cost of transportation so they do contribute to the 'fungibility'. That's why it doesn't matter much if US imports from Canada or from Venezuela, if US shifts 10% of its import from one or the other China can do the reverse and the price stays the same.

The poor infrastructure is already hitting North Dakota - the high transportation costs mean that some producers have to sell at $30-$35/barrel if they want anybody to buy it, and that's below production cost in some places.


That side of the equation is indeed good for you, but as somebody posted above may be there is a guy in canada who now has to spend $50 instead of $90 to power his gasoline lathe and make a brush. So the people in canada would rather buy from him the brush that he can now sell for 100CAD instead of from you because your brush costs 100USD=120CAD.

When you have to pay cost $35 for a quality Knot,than spend two days building a one of a kind Handle,$100 is cheap.

Originally Posted by 10Pups

A political note....Warren Buffet owns BNSF which is the only way oil gets down from Canada now. He bought Obama a long time before that. THAT is why the pipeline is stalled. It sure isn't because of environmental concerns. When the Republicans take over everything again this will change. And maybe the climate will reverse yet again LOL.

Here is a map of existing pipelines from Canada to the US CEPA Interactive Map for Liquids & Gas Pipelines . The reason more and more oil is being shipped by rail is that the existing pipeline system cannot transport the amount of oil now being produced. It just does not have enough capacity.

Bob

Hello to All,

As usual, the pump prices have not dropped sharply in the UK - before the plummet in oil prices, I paid ca. 9.50 USD imperial gallon for Diesel, and now pay ca. 8.70 USD.

Have fun

Best regards

Russ