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That's not quite true. The cost of producing shale oil has continued to fall. It started out high, but the industry breakeven price is now $48, and some produ

That's not quite true. The cost of producing shale oil has continued to fall. It started out high, but the industry breakeven price is now $48, and some producers can be profitable as low as $31.

mdorazio 6y ago
Do you have a source for this where I could read more? I'm continually fascinated by the downward pressure on oil production break-even prices.
- olivermarks 6y ago
  useful site https://oilprice.com https://oilprice.com
unexpected 6y ago
agreed. and while the cost of Saudi production is cheap, running the Saudi state is not. In the US, a sustained low oil price leads to a few bankruptcies. In Saudi, it will lead to political revolution.
- sand_castles 6y ago
  A sustained low price would cause a political revolution in North America much faster than in KSA. Without the need for holding dollars, rest of the world pulls the plug on the American financial system.
  - owenversteeg 6y ago
    While I think you have an interesting underlying point ("there's an enormous amount of USD used to transact oil") I don't think everyone getting out of oil would cause a revolution in the US. The US and the dollar abroad are involved in quite a bit more than oil. I do wonder what percentage, very roughly, of the money supply that is, and what the actual consequences of selling that would be. Anyone have some rough estimates or places to look?
  - ashtonkem 6y ago
    I do not believe this to be true. The best argument for low oil prices crashing the US economy would be in any changes to US debt interest rates. While this would certainly change a lot about US politics and finances, one could not count on continuing to borrow indefinitely at sub-inflation levels, America could almost certainly pay it off if it found the will to do so. The fact that America has a large and diverse non-oil economy that would be strengthened by dropping energy prices is certainly a factor. KSA meanwhile is a rentier state, with 67% of the budget coming from oil sales. Their non-oil economy is badly underdeveloped, and they depend almost entirely on oil money to keep their population fed, occupied, and suppressed. You’ll notice that I said “occupied”, since at a first glance the Saudi economy doesn’t actually include Saudis; 2/3rds of those employed in KSA aren’t Saudi (90% if you exclude oil), and only 30-40% of working age Saudi’s in KSA either have or want a job. If the oil money were cut off from KSA, the lifetime of that regime would be measured in hours.
    - sand_castles 6y ago
      > If the oil money were cut off from KSA, the lifetime of that regime would be measured in hours. Are you sure about that ? both Putin and Xi would jump to make a deal for future oil exports in exchange for meeting Saudi social / security needs. > America has a large and diverse non-oil economy So does India, China <-- not superpower or depend heavily of foreign borrowing. Pulling the plug on the dollar would materially make Americans poorer, independent analysts have put 50% of the value of the dollar arising from WRC status. Americans can't handle that level of lifestyle change, without it being turned into a revolution.
      - brnt 6y ago
        Russia is an exporter themselves, suffering greatly right now due to the low oil price. They are no less dependent on oil for their economy, and some say regime change is closer now than it has been in a long time. Xi is different, but its a big question whether the Saudis would agree to their usually awful terms.
        ashtonkem 6y ago
  - valuearb 6y ago
    That’s silly. Low oil prices are great for America’s economy, and oil has a lot less to do with the value of the dollar then our other exports, or our tax/regulatory environment.
bretpiatt 6y ago
Here's published numbers where Exxon only needs $26.90 to make a profit on New Mexico shale[1]. US producers are much more globally competitive than the general media narrative (I'm mostly a tech person in Texas but I socialize with energy folks a good bit). [1] https://www.cnbc.com/2020/03/16/reuters-america-analysis-few-u-s-shale-firms-can-withstand-prolonged-oil-price-war.html https://www.cnbc.com/2020/03/16/reuters-america-analysis-few...
- AtlasBarfed 6y ago
  I wrote this elsewhere, but I'm sure such prices require a certain amount of demand to keep the scale of production high enough. But if demand falls that saudi oil can handle all the demand, and the Saudis know that wind/solar/EV is going to kill off oil so they better make money while they can (which is why they sold off Aramco), then they will sell what they can to keep it under what is profitable for the US alternative sources.
  - chii 6y ago
    > why they sold off Aramco they barely sold off a 1.5% stake, and sold it to their own citizens, who are "forced" to buy it.
wavegeek 6y ago
Hmm it appears that the cost figures cited are operational costs only and do not including the cost of capital and the cost of debt. If your operation just breaks even on operational costs, it does not have a long term future. Look at all the big shale producers, their stock prices are top left to bottom right. Burning capital. This is not going to last and can only continue in the short term because of near-zero interest rates. Zero rates allow you to kick the can down the road .. for a while. My model of these companies is that the product they are producing is not oil but the false promise of profits, sold to gullible stock buyers. Along the way some of the money is siphoned off as executive salaries and bonuses. Reminiscent of many of the dot.com / dot.scam outfits back in the 1990s.

That's not quite true. The cost of producing shale oil has continued to fall. It started out high, but the industry breakeven price is now $48, and some producers can be profitable as low as $31.

mdorazio 6y ago

Do you have a source for this where I could read more? I'm continually fascinated by the downward pressure on oil production break-even prices.

olivermarks 6y ago
useful site https://oilprice.com https://oilprice.com

unexpected 6y ago

agreed. and while the cost of Saudi production is cheap, running the Saudi state is not. In the US, a sustained low oil price leads to a few bankruptcies. In Saudi, it will lead to political revolution.

sand_castles 6y ago
A sustained low price would cause a political revolution in North America much faster than in KSA. Without the need for holding dollars, rest of the world pulls the plug on the American financial system.
- owenversteeg 6y ago
  While I think you have an interesting underlying point ("there's an enormous amount of USD used to transact oil") I don't think everyone getting out of oil would cause a revolution in the US. The US and the dollar abroad are involved in quite a bit more than oil. I do wonder what percentage, very roughly, of the money supply that is, and what the actual consequences of selling that would be. Anyone have some rough estimates or places to look?
- ashtonkem 6y ago
  I do not believe this to be true. The best argument for low oil prices crashing the US economy would be in any changes to US debt interest rates. While this would certainly change a lot about US politics and finances, one could not count on continuing to borrow indefinitely at sub-inflation levels, America could almost certainly pay it off if it found the will to do so. The fact that America has a large and diverse non-oil economy that would be strengthened by dropping energy prices is certainly a factor. KSA meanwhile is a rentier state, with 67% of the budget coming from oil sales. Their non-oil economy is badly underdeveloped, and they depend almost entirely on oil money to keep their population fed, occupied, and suppressed. You’ll notice that I said “occupied”, since at a first glance the Saudi economy doesn’t actually include Saudis; 2/3rds of those employed in KSA aren’t Saudi (90% if you exclude oil), and only 30-40% of working age Saudi’s in KSA either have or want a job. If the oil money were cut off from KSA, the lifetime of that regime would be measured in hours.
  - sand_castles 6y ago
    > If the oil money were cut off from KSA, the lifetime of that regime would be measured in hours. Are you sure about that ? both Putin and Xi would jump to make a deal for future oil exports in exchange for meeting Saudi social / security needs. > America has a large and diverse non-oil economy So does India, China <-- not superpower or depend heavily of foreign borrowing. Pulling the plug on the dollar would materially make Americans poorer, independent analysts have put 50% of the value of the dollar arising from WRC status. Americans can't handle that level of lifestyle change, without it being turned into a revolution.
    - brnt 6y ago
      Russia is an exporter themselves, suffering greatly right now due to the low oil price. They are no less dependent on oil for their economy, and some say regime change is closer now than it has been in a long time. Xi is different, but its a big question whether the Saudis would agree to their usually awful terms.
      - ashtonkem 6y ago
- valuearb 6y ago
  That’s silly. Low oil prices are great for America’s economy, and oil has a lot less to do with the value of the dollar then our other exports, or our tax/regulatory environment.

bretpiatt 6y ago

Here's published numbers where Exxon only needs $26.90 to make a profit on New Mexico shale[1]. US producers are much more globally competitive than the general media narrative (I'm mostly a tech person in Texas but I socialize with energy folks a good bit). [1] https://www.cnbc.com/2020/03/16/reuters-america-analysis-few-u-s-shale-firms-can-withstand-prolonged-oil-price-war.html https://www.cnbc.com/2020/03/16/reuters-america-analysis-few...

AtlasBarfed 6y ago
I wrote this elsewhere, but I'm sure such prices require a certain amount of demand to keep the scale of production high enough. But if demand falls that saudi oil can handle all the demand, and the Saudis know that wind/solar/EV is going to kill off oil so they better make money while they can (which is why they sold off Aramco), then they will sell what they can to keep it under what is profitable for the US alternative sources.
- chii 6y ago
  > why they sold off Aramco they barely sold off a 1.5% stake, and sold it to their own citizens, who are "forced" to buy it.

wavegeek 6y ago

Hmm it appears that the cost figures cited are operational costs only and do not including the cost of capital and the cost of debt. If your operation just breaks even on operational costs, it does not have a long term future. Look at all the big shale producers, their stock prices are top left to bottom right. Burning capital. This is not going to last and can only continue in the short term because of near-zero interest rates. Zero rates allow you to kick the can down the road .. for a while. My model of these companies is that the product they are producing is not oil but the false promise of profits, sold to gullible stock buyers. Along the way some of the money is siphoned off as executive salaries and bonuses. Reminiscent of many of the dot.com / dot.scam outfits back in the 1990s.