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Oil will be priced according to supply and demand. There may still be use cases which require oil. And however cheap the competition can produce oil it will be

by carlmr 7y ago

Oil will be priced according to supply and demand. There may still be use cases which require oil. And however cheap the competition can produce oil it will be priced. This is non-news.

tristanperry 7y ago
OPEC are much less powerful than the decades of past - thankfully - but it'll be a while before oil will be _truly_ priced by supply and demand and nothing else.
- audiometry 7y ago
  Their back was broken when they tried to kill shale oil in 2016 and failed.
- paulie_a 7y ago
  Members of opec don't have power because they all cheat.
onion2k 7y ago
Oil will be priced according to supply and demand. Supply, demand, and subsidies.
- LeonM 7y ago
  > Supply, demand, and subsidies. Supply, demand, subsidies and political stability of the country that produces it. In short: oil prices are affected by many factors.
- luckylion 7y ago
  Isn't that the case for everything, including green energy tech?
  - ljcn 7y ago
    I think the distinction is that many people are familiar with green energy being subsidised and surprised that oil & gas (often large, established, wealthy, and profitable companies) are too (at least in terms of tax breaks).
marble-drink 7y ago
Not quite. Oil and its derivatives are also subject to heavy subsidies and taxation. These "corrections" are supposed to take into account external costs and benefits that wouldn't be otherwise in the price but, unfortunately, it is also susceptible to corruption. In the case of oil the external costs are so large that taxation can completely take its competitive edge.
- AlanSE 7y ago
  Claiming that oil is subsidized is a tired trope. Yes you can argue that the Iraq War was done for oil, it's just not a strong argument. Many oil producing nations use oil revenue to subsidize everything else they (the government) wants, so the subsidy argument stands on weak footing for both consuming and producing nations. Oil has unpaid for economic externalities, specifically climate change. This is not the same as a subsidy.
  - marvin 7y ago
    Here is an article with a long list of literal fossil fuel subsidies that are largely ignored when discussing the economic environment for fossil fuels vs. non-CO2 energy sources. (The article also discusses some of the indirect subsidies that you're describing as a 'tired trope', but the main theme is economic stimulus that directly supports extraction, exploration, distribution, transport and consumption of fossil fuels). https://www.vox.com/energy-and-environment/2017/10/6/16428458/us-energy-coal-oil-subsidies https://www.vox.com/energy-and-environment/2017/10/6/1642845...
    - navigatesol 7y ago
      Why do they compare absolute figures? Is it surprising to you that fossil fuel subsidies are greater than renewable subsidies by such a measure? How much does each industry earn in taxes? >Yet this fact, so inconvenient to the conservative worldview Can you explain what "the conservative worldview" is for the readers? Sounds like the author has an obvious political leaning.
  - navigatesol 7y ago
est31 7y ago
The moment renewables are cheaper than oil extraction they have won. The issue is just that oil extraction costs, while exant, are quite low for some types of oil. As a long term trend though I guess we'll see energy become cheaper and cheaper in a competitive race, driven by the wish for the market to adopt renewables. So hopefully we'll soon live in a world where energy is cheap and green :).
- ReptileMan 7y ago
  Well renewable plastic and generally speaking polymers are far off. A lot of oil will still be used. Hydrocarbons have way more uses.
deleted 7y ago
[deleted]
oska 7y ago
It can't be priced below the cost of extraction (not without subsidies anyway).
- JumpCrisscross 7y ago
  > It can't be priced below the cost of extraction "Cost of extraction" is a fuzzy term. If it costs $100 to set up a well that lasts 10 years and $1 to pump 1 barrel of oil a year, then is the economic cost is around $11 per barrel (loosely estimated) and the marginal cost $1 per barrel. This is how an existing well can price below the economic cost of extraction but above the marginal cost. It doesn't make sense to compete with them by setting up new pumps. But pumps last a long time, and there are a lot of pumps out there.
  - ThomPete 7y ago
    For oil the cost of extraction isnt as simple as you seem to imply. The diversity of what oil can be used for and the value of those things, far exceed to the cost of extracting it. No other material is as valuable and diverse as oil.
    - JumpCrisscross 7y ago
      > The diversity of what oil can be used for and the value of those things, far exceed to the cost of extracting it This is a statement about demand, not cost. Nobody is saying oil is going to zero. And the cost curve for oil production varies greatly from well to well. Many wells are already extracting at total costs above price.
      - ThomPete 7y ago
        The cost needs to be divided out on other things than just for energy, thats the point.
        JumpCrisscross 7y ago
gnode 7y ago
> however cheap the competition can produce oil it will be priced This assumes a perfectly competitive market, which is far from reality. Oil production is dominated by a cartel. As a cartel can increase prices to maximise profitability, to a large extent, the price of oil is controlled by the price elasticity of demand.
jillesvangurp 7y ago
There's going to be a minimum cost though and it's higher than 20$ per barrel. At best, producing oil at those price levels is going to be not very lucrative. A lot of the remaining oil out there is getting quite hard to produce meaning the cost is high. E.g. Shale oil becomes a loss leading venture when the prices drop that low. This wikipedia article suggests that 25$ is sort of the lower boundary here: https://en.wikipedia.org/wiki/Oil_shale_economics https://en.wikipedia.org/wiki/Oil_shale_economics. I have no idea if those numbers are correct but they are probably much higher than 20$ per barrel. There is of course plenty of oil left but it is not the same cheap oil that we were used to last century where you basically stuck a pipe in a ground in a place like Texas and cheap oil would come out. Most of that oil is gone. Also, not all oil is created equally and some oil is a lot nicer to work with than other oil when it comes to refining it. Which is why the US still imports oil from the middle east. Refining is not free either obviously and actually uses lots of energy. Ironically, a lot of wind/solar is being used for that. This is indeed not news. Oil investors have known this for some time and have been voting with their feet. Also, most EV owners are well familiar with the fact that the cost of recharging is peanuts compared to filling up a car with petrol/diesel. I'd say that 20$ is going to come down by 2-4x over the next 20 years.

by carlmr 7y ago

Oil will be priced according to supply and demand. There may still be use cases which require oil. And however cheap the competition can produce oil it will be priced. This is non-news.

tristanperry 7y ago

OPEC are much less powerful than the decades of past - thankfully - but it'll be a while before oil will be _truly_ priced by supply and demand and nothing else.

audiometry 7y ago
Their back was broken when they tried to kill shale oil in 2016 and failed.
paulie_a 7y ago
Members of opec don't have power because they all cheat.

onion2k 7y ago

Oil will be priced according to supply and demand. Supply, demand, and subsidies.

LeonM 7y ago
> Supply, demand, and subsidies. Supply, demand, subsidies and political stability of the country that produces it. In short: oil prices are affected by many factors.
luckylion 7y ago
Isn't that the case for everything, including green energy tech?
- ljcn 7y ago
  I think the distinction is that many people are familiar with green energy being subsidised and surprised that oil & gas (often large, established, wealthy, and profitable companies) are too (at least in terms of tax breaks).

marble-drink 7y ago

Not quite. Oil and its derivatives are also subject to heavy subsidies and taxation. These "corrections" are supposed to take into account external costs and benefits that wouldn't be otherwise in the price but, unfortunately, it is also susceptible to corruption. In the case of oil the external costs are so large that taxation can completely take its competitive edge.

AlanSE 7y ago
Claiming that oil is subsidized is a tired trope. Yes you can argue that the Iraq War was done for oil, it's just not a strong argument. Many oil producing nations use oil revenue to subsidize everything else they (the government) wants, so the subsidy argument stands on weak footing for both consuming and producing nations. Oil has unpaid for economic externalities, specifically climate change. This is not the same as a subsidy.
- marvin 7y ago
  Here is an article with a long list of literal fossil fuel subsidies that are largely ignored when discussing the economic environment for fossil fuels vs. non-CO2 energy sources. (The article also discusses some of the indirect subsidies that you're describing as a 'tired trope', but the main theme is economic stimulus that directly supports extraction, exploration, distribution, transport and consumption of fossil fuels). https://www.vox.com/energy-and-environment/2017/10/6/16428458/us-energy-coal-oil-subsidies https://www.vox.com/energy-and-environment/2017/10/6/1642845...
  - navigatesol 7y ago
    Why do they compare absolute figures? Is it surprising to you that fossil fuel subsidies are greater than renewable subsidies by such a measure? How much does each industry earn in taxes? >Yet this fact, so inconvenient to the conservative worldview Can you explain what "the conservative worldview" is for the readers? Sounds like the author has an obvious political leaning.
- navigatesol 7y ago

est31 7y ago

The moment renewables are cheaper than oil extraction they have won. The issue is just that oil extraction costs, while exant, are quite low for some types of oil. As a long term trend though I guess we'll see energy become cheaper and cheaper in a competitive race, driven by the wish for the market to adopt renewables. So hopefully we'll soon live in a world where energy is cheap and green :).

ReptileMan 7y ago
Well renewable plastic and generally speaking polymers are far off. A lot of oil will still be used. Hydrocarbons have way more uses.

deleted 7y ago

[deleted]

oska 7y ago

It can't be priced below the cost of extraction (not without subsidies anyway).

JumpCrisscross 7y ago
> It can't be priced below the cost of extraction "Cost of extraction" is a fuzzy term. If it costs $100 to set up a well that lasts 10 years and $1 to pump 1 barrel of oil a year, then is the economic cost is around $11 per barrel (loosely estimated) and the marginal cost $1 per barrel. This is how an existing well can price below the economic cost of extraction but above the marginal cost. It doesn't make sense to compete with them by setting up new pumps. But pumps last a long time, and there are a lot of pumps out there.
- ThomPete 7y ago
  For oil the cost of extraction isnt as simple as you seem to imply. The diversity of what oil can be used for and the value of those things, far exceed to the cost of extracting it. No other material is as valuable and diverse as oil.
  - JumpCrisscross 7y ago
    > The diversity of what oil can be used for and the value of those things, far exceed to the cost of extracting it This is a statement about demand, not cost. Nobody is saying oil is going to zero. And the cost curve for oil production varies greatly from well to well. Many wells are already extracting at total costs above price.
    - ThomPete 7y ago
      The cost needs to be divided out on other things than just for energy, thats the point.
      - JumpCrisscross 7y ago

gnode 7y ago

> however cheap the competition can produce oil it will be priced This assumes a perfectly competitive market, which is far from reality. Oil production is dominated by a cartel. As a cartel can increase prices to maximise profitability, to a large extent, the price of oil is controlled by the price elasticity of demand.

jillesvangurp 7y ago

There's going to be a minimum cost though and it's higher than 20$ per barrel. At best, producing oil at those price levels is going to be not very lucrative. A lot of the remaining oil out there is getting quite hard to produce meaning the cost is high. E.g. Shale oil becomes a loss leading venture when the prices drop that low. This wikipedia article suggests that 25$ is sort of the lower boundary here: https://en.wikipedia.org/wiki/Oil_shale_economics https://en.wikipedia.org/wiki/Oil_shale_economics. I have no idea if those numbers are correct but they are probably much higher than 20$ per barrel. There is of course plenty of oil left but it is not the same cheap oil that we were used to last century where you basically stuck a pipe in a ground in a place like Texas and cheap oil would come out. Most of that oil is gone. Also, not all oil is created equally and some oil is a lot nicer to work with than other oil when it comes to refining it. Which is why the US still imports oil from the middle east. Refining is not free either obviously and actually uses lots of energy. Ironically, a lot of wind/solar is being used for that. This is indeed not news. Oil investors have known this for some time and have been voting with their feet. Also, most EV owners are well familiar with the fact that the cost of recharging is peanuts compared to filling up a car with petrol/diesel. I'd say that 20$ is going to come down by 2-4x over the next 20 years.