7 ms·

The World's Cheapest Oil Is Already Close to $20

50 points by e15ctr0n 11y ago

iLoch 11y ago
What does ISIS charge? I can't imagine they're in a position to charge much. Then again, I know nothing.
- ZeroGravitas 11y ago
  I also know nothing, but think that avoiding taxes might let you sell oil cheap and still make money, as would simply seizing the means of production rather than investing money in them that needs to be recouped.
- joakleaf 11y ago
  There is a Planet Money podcast about the financials of ISIS. They did talk about how the oil is exported, but I don't remember if it included a specific price point. http://www.npr.org/sections/money/2015/12/04/458524627/episode-667-auditing-isis http://www.npr.org/sections/money/2015/12/04/458524627/episo...
  - dagw 11y ago
    They never mentioned a pr. barrel price, but they did say the experts where surprised at how little money they where making given how much oil they where selling.
melted 11y ago
Last time oil dropped so abruptly the Soviet Union fell apart. I wonder what will happen this time.
- danieltillett 11y ago
  Venezuela is the canary this time.
- chvid 11y ago
  Maybe the Middle East falls apart.
- simonh 11y ago
  Russia is still looking very vulnerable in that respect. Rosneft's heavy debt burden combined with high inflation in Russia (probably 15% for 2015) is hammering their ability to invest in expanding capacity. Reduced investment also means costs of production are on an upward trend. Then add in the Saudi's moves to increase market share in Northern Europe and it's not looking too good.
  - danieltillett 11y ago
    Do you think Russia is going to break before Venezuela? I would not ever want to bet against how stoic the Russians can be.
    - _Codemonkeyism 11y ago
      The socialst government of Venezuela already 'broke' and was voted out in favor of conservatives, due to various reasons, one of them that the socialists could no longer pay for everything with petro dollars. What more would you assume "break" means for Venezuela? Russia's government is still in place.
      - danieltillett 11y ago
        We will see what all the voting amounts too in practice in Venezuela. Even if it does mean a change in government and policy there is not much they can do given their financial situation.
    - simonh 11y ago
      I don't know what Russia 'Breaking' looks like. Is it Putin getting replaced? Is it a Russian Maidan? A Russian default? Things are going to get worse, that's for sure, but talk about economies 'collapsing' or being 'destroyed' are always superlative.
seren 11y ago
I have no idea how it can be sustainable, the low prices have frozen all investment on new fields/fracking/exploration, and when we will have a production slump in a few years, it will be followed by a sharp rise, that will be really painful.
- danieltillett 11y ago
  That is the Saudi plan - knock out the frackers and renewables then jack up the price. Let's hope they don't succeed. They are racking up a lot of debt right now trying to keep a lid on their population problems so they might find their ability to borrow breaks first.
  - simonh 11y ago
    Completely agree, to be honest their current strategy is probably the right way to go but that's just because the alternative strategies are even worse. The problem with knocking out fracking is that the frackers can ramp production back up again fairly quickly. Also because the frackers aren't a state run operation and aren't a systemic risk to the Us economy, if the current fracking companies go bust the damage is contained to those companies shareholders. In fact that's largely already happened. Other companies and investors will just move in, take over their operations at a market adjusted discount, and be ready to start producing again when the conditions are right. This will likely put a much lower long term cap on the oil price than we've seen in the past.
    - danieltillett 11y ago
      The history of the airline industry would suggest you are right. A long term low oil price is not very compatible with intent of the Paris accord though.
      - matt4077 11y ago
        According to a friend who works in politics & energy, the general consensus is that almost all oil will eventually be used. The real battle is over coal, and wether the world will manage to leave some of it in the ground.
diafygi 11y ago
Call me crazy, but I think there's something else going on here. What if Saudi Arabia is having a fire sale? There's a ton of science that says that we can only pull up half of our current oil reserves to cap climate change at 3 degrees (2 degrees isn't even feasible)[1][2]. That combined with the political and economic tides starting to shift in favor of renewables/nuclear and electric vehicles[3], peak carbon is starting to look like it will happen around 2020 (only 5 years away)[4]. So, if the world will only pull up half of what it already has in reserves, it's a great strategy for Saudi to drive down price and try to make sure most of that half is from their pool. I'm in renewables, and there's a common question we always ask: will oil die at a high price or a low price? It looks like it's going to be a low price. [1]: http://www.carbontracker.org/report/wasted-capital-and-stranded-assets/ http://www.carbontracker.org/report/wasted-capital-and-stran... [2]: https://en.wikipedia.org/wiki/Carbon_bubble https://en.wikipedia.org/wiki/Carbon_bubble [3]: http://www.npr.org/sections/thetwo-way/2015/12/12/459464621/final-draft-of-world-climate-agreement-goes-to-a-vote-in-paris-saturday http://www.npr.org/sections/thetwo-way/2015/12/12/459464621/... [4]: https://www.iea.org/newsroomandevents/pressreleases/2015/june/iea-sets-out-pillars-for-success-at-cop21.html https://www.iea.org/newsroomandevents/pressreleases/2015/jun...
- tristanj 11y ago
  This does not match any of the Saudi press statements on the oil situation. The Saudi position and their motivations have been consistent for months with thousands of articles documenting this. In summary, publicly, they are not reducing oil output because in the previous oil crisis, they cut production and suffered heavily vs those who did not. The private reason they are still pumping is that they intend to bankrupt/destroy the US Shale industry. They've done an excellent job at this. These articles with inside information never mention "climate change" or "renewables" as the reason for the situation. Unless you can show sources showing the price change is because of climate change, this just a delusional conspiracy theory.
  - tomp 11y ago
    Why would you assume a market actor is being straightforward about their strategy, especially if others being aware of this strategy would put them at a disadvantage? Deception is a competitive strategy!
cdnsteve 11y ago
It's nothing more than a market share grab. They're simply bullying competitors out of the market. They have deep pockets and it's an ideal time to strike. So they take a calculated loss for the next 2 even 3 years and they gain more market share.... the costs will rise again and so will their payoff.
couldntresist 11y ago
Well couldn't resist (related comic) http://orig06.deviantart.net/f87f/f/2015/350/4/7/__en___international_walking_lobby_by_couldntresist-d9kcsgg.png http://orig06.deviantart.net/f87f/f/2015/350/4/7/__en___inte...

50 points by e15ctr0n 11y ago

iLoch 11y ago

What does ISIS charge? I can't imagine they're in a position to charge much. Then again, I know nothing.

ZeroGravitas 11y ago
I also know nothing, but think that avoiding taxes might let you sell oil cheap and still make money, as would simply seizing the means of production rather than investing money in them that needs to be recouped.
joakleaf 11y ago
There is a Planet Money podcast about the financials of ISIS. They did talk about how the oil is exported, but I don't remember if it included a specific price point. http://www.npr.org/sections/money/2015/12/04/458524627/episode-667-auditing-isis http://www.npr.org/sections/money/2015/12/04/458524627/episo...
- dagw 11y ago
  They never mentioned a pr. barrel price, but they did say the experts where surprised at how little money they where making given how much oil they where selling.

melted 11y ago

Last time oil dropped so abruptly the Soviet Union fell apart. I wonder what will happen this time.

danieltillett 11y ago
Venezuela is the canary this time.
chvid 11y ago
Maybe the Middle East falls apart.
simonh 11y ago
Russia is still looking very vulnerable in that respect. Rosneft's heavy debt burden combined with high inflation in Russia (probably 15% for 2015) is hammering their ability to invest in expanding capacity. Reduced investment also means costs of production are on an upward trend. Then add in the Saudi's moves to increase market share in Northern Europe and it's not looking too good.
- danieltillett 11y ago
  Do you think Russia is going to break before Venezuela? I would not ever want to bet against how stoic the Russians can be.
  - _Codemonkeyism 11y ago
    The socialst government of Venezuela already 'broke' and was voted out in favor of conservatives, due to various reasons, one of them that the socialists could no longer pay for everything with petro dollars. What more would you assume "break" means for Venezuela? Russia's government is still in place.
    - danieltillett 11y ago
      We will see what all the voting amounts too in practice in Venezuela. Even if it does mean a change in government and policy there is not much they can do given their financial situation.
  - simonh 11y ago
    I don't know what Russia 'Breaking' looks like. Is it Putin getting replaced? Is it a Russian Maidan? A Russian default? Things are going to get worse, that's for sure, but talk about economies 'collapsing' or being 'destroyed' are always superlative.

seren 11y ago

I have no idea how it can be sustainable, the low prices have frozen all investment on new fields/fracking/exploration, and when we will have a production slump in a few years, it will be followed by a sharp rise, that will be really painful.

danieltillett 11y ago
That is the Saudi plan - knock out the frackers and renewables then jack up the price. Let's hope they don't succeed. They are racking up a lot of debt right now trying to keep a lid on their population problems so they might find their ability to borrow breaks first.
- simonh 11y ago
  Completely agree, to be honest their current strategy is probably the right way to go but that's just because the alternative strategies are even worse. The problem with knocking out fracking is that the frackers can ramp production back up again fairly quickly. Also because the frackers aren't a state run operation and aren't a systemic risk to the Us economy, if the current fracking companies go bust the damage is contained to those companies shareholders. In fact that's largely already happened. Other companies and investors will just move in, take over their operations at a market adjusted discount, and be ready to start producing again when the conditions are right. This will likely put a much lower long term cap on the oil price than we've seen in the past.
  - danieltillett 11y ago
    The history of the airline industry would suggest you are right. A long term low oil price is not very compatible with intent of the Paris accord though.
    - matt4077 11y ago
      According to a friend who works in politics & energy, the general consensus is that almost all oil will eventually be used. The real battle is over coal, and wether the world will manage to leave some of it in the ground.

diafygi 11y ago

Call me crazy, but I think there's something else going on here. What if Saudi Arabia is having a fire sale? There's a ton of science that says that we can only pull up half of our current oil reserves to cap climate change at 3 degrees (2 degrees isn't even feasible)[1][2]. That combined with the political and economic tides starting to shift in favor of renewables/nuclear and electric vehicles[3], peak carbon is starting to look like it will happen around 2020 (only 5 years away)[4]. So, if the world will only pull up half of what it already has in reserves, it's a great strategy for Saudi to drive down price and try to make sure most of that half is from their pool. I'm in renewables, and there's a common question we always ask: will oil die at a high price or a low price? It looks like it's going to be a low price. [1]: http://www.carbontracker.org/report/wasted-capital-and-stranded-assets/ http://www.carbontracker.org/report/wasted-capital-and-stran... [2]: https://en.wikipedia.org/wiki/Carbon_bubble https://en.wikipedia.org/wiki/Carbon_bubble [3]: http://www.npr.org/sections/thetwo-way/2015/12/12/459464621/final-draft-of-world-climate-agreement-goes-to-a-vote-in-paris-saturday http://www.npr.org/sections/thetwo-way/2015/12/12/459464621/... [4]: https://www.iea.org/newsroomandevents/pressreleases/2015/june/iea-sets-out-pillars-for-success-at-cop21.html https://www.iea.org/newsroomandevents/pressreleases/2015/jun...

tristanj 11y ago
This does not match any of the Saudi press statements on the oil situation. The Saudi position and their motivations have been consistent for months with thousands of articles documenting this. In summary, publicly, they are not reducing oil output because in the previous oil crisis, they cut production and suffered heavily vs those who did not. The private reason they are still pumping is that they intend to bankrupt/destroy the US Shale industry. They've done an excellent job at this. These articles with inside information never mention "climate change" or "renewables" as the reason for the situation. Unless you can show sources showing the price change is because of climate change, this just a delusional conspiracy theory.
- tomp 11y ago
  Why would you assume a market actor is being straightforward about their strategy, especially if others being aware of this strategy would put them at a disadvantage? Deception is a competitive strategy!

cdnsteve 11y ago

It's nothing more than a market share grab. They're simply bullying competitors out of the market. They have deep pockets and it's an ideal time to strike. So they take a calculated loss for the next 2 even 3 years and they gain more market share.... the costs will rise again and so will their payoff.

couldntresist 11y ago

Well couldn't resist (related comic) http://orig06.deviantart.net/f87f/f/2015/350/4/7/__en___international_walking_lobby_by_couldntresist-d9kcsgg.png http://orig06.deviantart.net/f87f/f/2015/350/4/7/__en___inte...