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Oil is a $70 trillion industry and yet a barrel of crude is currently $60. What does that mean? Nothing. You are just creating a faux correlation between two p

Oil is a $70 trillion industry and yet a barrel of crude is currently $60. What does that mean? Nothing. You are just creating a faux correlation between two prices with no justification.

tlamponi 7y ago
Yeah, and a barrel of oil is about 1.7 MWh, so the proportion seems to be about right. https://en.wikipedia.org/wiki/Barrel_of_oil_equivalent https://en.wikipedia.org/wiki/Barrel_of_oil_equivalent OP gave an implicit justifications, bigger industry can mean that the goal to more efficient produce gets backed by more $€£, and thus gets reached more faster - at least if no monopoly will be created (as then the consumer is screwed 100%).
cjohnson318 7y ago
It currently costs about $10-12 million to drill and produce a well in West Texas. The fact that a barrel of crude is only ~$60 is absolutely mind-boggling.
- toomuchtodo 7y ago
  The current crude price is due to a worldwide glut in the oil market along with weakening demand growth, OPEC facing forces that are causing it to make production missteps it has no choice but to make, and US shale having to pump to service debt they've overextended themselves with. Chesapeake Energy, previously an O&G industry darling, is struggling under $9 billion in crushing debt, and has made statements they may not be able to continue as a going concern. At the same time, investors are not so interested in overly optimistic and aggressive well depletion projections. https://www.reuters.com/article/us-oil-opec/opec-extends-oil-cut-to-prop-up-prices-as-economy-weakens-idUSKCN1TW1LF https://www.reuters.com/article/us-oil-opec/opec-extends-oil... (OPEC extends oil cut to prop up prices as economy weakens) https://www.bloomberg.com/opinion/articles/2019-09-08/the-world-s-oil-glut-is-much-worse-than-it-looks https://www.bloomberg.com/opinion/articles/2019-09-08/the-wo... (The World’s Oil Glut Is Much Worse Than It Looks)
  - tialaramex 7y ago
    It's not just the debt. Climate concern means that instead of the choice being between selling your oil for $1 today or hoping to get $2 tomorrow, now it's $1 today or get lynched for pumping oil out of the ground tomorrow. Worse, the producers don't know when exactly tomorrow is. Probably it's before 2050, but maybe it's before 2040. If enough people get scared it could be sooner. This is one reason many in that industry actually supported global carbon taxes. Having your entire industry phased out smoothly is a nice predictable future. Sure, you'd rather continue to make money forever, but a smooth exit is the next best thing. Some readers have probably had garden leave, an employer terminates you but pays you salary for a few months to stay home and not work - as an employee you can't tell any secrets or work for someone else. It's unsatisfying, but it's predictable, the mortgage gets paid. Much scarier to show up one morning and find oh, the company went bankrupt, you won't get this month's pay and the tax man hasn't received their cut for the last six months either. Same thing with a gradually increasing system-side carbon tax. Using oil becomes uneconomic, but gradually and predictably. The industry dies but the people running it come out OK. We've opted for a world where it may all go very wrong for them very quickly.
  - anon73044 7y ago
    Chesapeake suffers from decades of mismanagement. Granted there are other oil companies that are also suffering (Lynn, Continental, Williams, Devon, OXY, etc.) But there are a few that are doing well (Total SA, NYSE:MCP, PRNG, EGY, etc) Disclaimer: several family members are current and previous Chesapeake employees. I no longer own any of the stocks listed above.
- allovernow 7y ago
  Offshore deep water wells the world over regularly cost $100MM-$200MM+ just to drill.
- readhn 7y ago
  A dentist in west Texas charges $150 for a regular tooth filling. A dentist in the middle east charges $15 for the same job.
KorematsuFred 7y ago
It boggles my mind that I pay only $3 per gallon of gas in Nevada (and $5 in Communist Republic of California) despite the fact that it is obtained by drilling into oceans, in extreme cold weather of alaska or the super hot regions of texas, refined at some place and then transported 1000 miles in ships, trucks, trains. That price is an example of extreme economic efficiency. Battery prices will go down over time as the industry grows.
allovernow 7y ago
Well, perhaps GP was arguing that battery prices were functions of an economy of scale. No such property applies to petroleum, since growth in petroleum means going after more difficult reserves, which means higher prices.
- lottin 7y ago
  It wouldn't make sense though, because economies of scale are enterprise-wide not industry-wide.
  - allovernow 7y ago
    I don't know that I'd agree with that. Look at the computer industry, for a example, and how many small, medium, and large agents all benefit from what amounts to a distributed economy of scale. Apple, Microsoft, Dell and the like all produce better products with less investment when their suppliers can spend fewer dollars per widget throughout the supply chain.
  - marcosdumay 7y ago
    They happen on both spheres. But yes, I would really like to know the rationale behind the GP's opinion.
- jeromegv 7y ago
  You still have to get lithium?
  - ben_w 7y ago
    I’m not a chemist — would it be harder to get it from recycling old batteries than getting it from rocks? Because even the battery market is saturated, recycling is the only source you’ll need.
    - salty_biscuits 7y ago
      There is a lot of lithium about, just not a lot of stuff that is easy to get at. The cost of lithium isn't a huge part of battery cost at the moment anyway (10s of dollars per kilo with about 50kg in an ev battery).
rgbrenner 7y ago
World gdp is 80 trillion. So the 70 trillion estimate you throw out for oil is clearly hyperbole... in case anyone is taking that literally.
- hueving 7y ago
  Yeah, $2 trillion is the ballpark. Link for those curious: https://www.investopedia.com/ask/answers/030915/what-percentage-global-economy-comprised-oil-gas-drilling-sector.asp https://www.investopedia.com/ask/answers/030915/what-percent...
choeger 7y ago
It is called the learning curve. It applies to prettyucj every industry. Especially if said industry mass produces a standardized product.
aeyes 7y ago
What? Projected world GDP for 2019 is $88 trillion.

Oil is a $70 trillion industry and yet a barrel of crude is currently $60. What does that mean? Nothing. You are just creating a faux correlation between two prices with no justification.

tlamponi 7y ago

Yeah, and a barrel of oil is about 1.7 MWh, so the proportion seems to be about right. https://en.wikipedia.org/wiki/Barrel_of_oil_equivalent https://en.wikipedia.org/wiki/Barrel_of_oil_equivalent OP gave an implicit justifications, bigger industry can mean that the goal to more efficient produce gets backed by more $€£, and thus gets reached more faster - at least if no monopoly will be created (as then the consumer is screwed 100%).

cjohnson318 7y ago

It currently costs about $10-12 million to drill and produce a well in West Texas. The fact that a barrel of crude is only ~$60 is absolutely mind-boggling.

toomuchtodo 7y ago
The current crude price is due to a worldwide glut in the oil market along with weakening demand growth, OPEC facing forces that are causing it to make production missteps it has no choice but to make, and US shale having to pump to service debt they've overextended themselves with. Chesapeake Energy, previously an O&G industry darling, is struggling under $9 billion in crushing debt, and has made statements they may not be able to continue as a going concern. At the same time, investors are not so interested in overly optimistic and aggressive well depletion projections. https://www.reuters.com/article/us-oil-opec/opec-extends-oil-cut-to-prop-up-prices-as-economy-weakens-idUSKCN1TW1LF https://www.reuters.com/article/us-oil-opec/opec-extends-oil... (OPEC extends oil cut to prop up prices as economy weakens) https://www.bloomberg.com/opinion/articles/2019-09-08/the-world-s-oil-glut-is-much-worse-than-it-looks https://www.bloomberg.com/opinion/articles/2019-09-08/the-wo... (The World’s Oil Glut Is Much Worse Than It Looks)
- tialaramex 7y ago
  It's not just the debt. Climate concern means that instead of the choice being between selling your oil for $1 today or hoping to get $2 tomorrow, now it's $1 today or get lynched for pumping oil out of the ground tomorrow. Worse, the producers don't know when exactly tomorrow is. Probably it's before 2050, but maybe it's before 2040. If enough people get scared it could be sooner. This is one reason many in that industry actually supported global carbon taxes. Having your entire industry phased out smoothly is a nice predictable future. Sure, you'd rather continue to make money forever, but a smooth exit is the next best thing. Some readers have probably had garden leave, an employer terminates you but pays you salary for a few months to stay home and not work - as an employee you can't tell any secrets or work for someone else. It's unsatisfying, but it's predictable, the mortgage gets paid. Much scarier to show up one morning and find oh, the company went bankrupt, you won't get this month's pay and the tax man hasn't received their cut for the last six months either. Same thing with a gradually increasing system-side carbon tax. Using oil becomes uneconomic, but gradually and predictably. The industry dies but the people running it come out OK. We've opted for a world where it may all go very wrong for them very quickly.
- anon73044 7y ago
  Chesapeake suffers from decades of mismanagement. Granted there are other oil companies that are also suffering (Lynn, Continental, Williams, Devon, OXY, etc.) But there are a few that are doing well (Total SA, NYSE:MCP, PRNG, EGY, etc) Disclaimer: several family members are current and previous Chesapeake employees. I no longer own any of the stocks listed above.
allovernow 7y ago
Offshore deep water wells the world over regularly cost $100MM-$200MM+ just to drill.
readhn 7y ago
A dentist in west Texas charges $150 for a regular tooth filling. A dentist in the middle east charges $15 for the same job.

KorematsuFred 7y ago

It boggles my mind that I pay only $3 per gallon of gas in Nevada (and $5 in Communist Republic of California) despite the fact that it is obtained by drilling into oceans, in extreme cold weather of alaska or the super hot regions of texas, refined at some place and then transported 1000 miles in ships, trucks, trains. That price is an example of extreme economic efficiency. Battery prices will go down over time as the industry grows.

allovernow 7y ago

Well, perhaps GP was arguing that battery prices were functions of an economy of scale. No such property applies to petroleum, since growth in petroleum means going after more difficult reserves, which means higher prices.

lottin 7y ago
It wouldn't make sense though, because economies of scale are enterprise-wide not industry-wide.
- allovernow 7y ago
  I don't know that I'd agree with that. Look at the computer industry, for a example, and how many small, medium, and large agents all benefit from what amounts to a distributed economy of scale. Apple, Microsoft, Dell and the like all produce better products with less investment when their suppliers can spend fewer dollars per widget throughout the supply chain.
- marcosdumay 7y ago
  They happen on both spheres. But yes, I would really like to know the rationale behind the GP's opinion.
jeromegv 7y ago
You still have to get lithium?
- ben_w 7y ago
  I’m not a chemist — would it be harder to get it from recycling old batteries than getting it from rocks? Because even the battery market is saturated, recycling is the only source you’ll need.
  - salty_biscuits 7y ago
    There is a lot of lithium about, just not a lot of stuff that is easy to get at. The cost of lithium isn't a huge part of battery cost at the moment anyway (10s of dollars per kilo with about 50kg in an ev battery).

rgbrenner 7y ago

World gdp is 80 trillion. So the 70 trillion estimate you throw out for oil is clearly hyperbole... in case anyone is taking that literally.

hueving 7y ago
Yeah, $2 trillion is the ballpark. Link for those curious: https://www.investopedia.com/ask/answers/030915/what-percentage-global-economy-comprised-oil-gas-drilling-sector.asp https://www.investopedia.com/ask/answers/030915/what-percent...

choeger 7y ago

It is called the learning curve. It applies to prettyucj every industry. Especially if said industry mass produces a standardized product.

aeyes 7y ago

What? Projected world GDP for 2019 is $88 trillion.