Sunday, January 11, 2015

The oil price collapse: what's so special about it?

As I said in a previous post of mine, strong price oscillations are expected at or near the production peak. Prices can go up and down, but the drops don't last for long and the overall trend is clear: it goes up.  Graph by Frances Coppola.


  1. Put a line through that from 1998 on to 2020 and we get 100.

  2. Hi all,

    Following article at Rigzone claims that
    Nearly 2% Of Global Crude Could Be Cash Negative at $40 Brent:

    The firm concluded that producers would begin shutting in production at $40/bbl Brent crude or lower, to a point where a significant reduction in global supply would result.

    However, FULL CYCLE analysis of oil from extraction to consumer is notoriously complicated and the numbers significatly differ, so I think this analysis is quite optimistic:

    At the $40/bbl price point, several Canadian oil sands projects are contributors to production. However, tight oil production only starts to become cash negative as Brent falls into the high $30s.
    Wood Mackenzie also found that, at $50/bbl Brent, only 190,000 bpd of oil production, or .2 percent of world supply, is cash negative.

    I admitt I don't know what is the methodology of calculating "break-even" oil price. Also, there are people claiming we are NOT going back to 100 dollars/per barrel oil.

    Saudi Prince Warns "We Will Not See $100 Oil Again", Calls Anti-Russia Conspiracy "Baloney"

    And let's not forget the fact, that in order to not cross 2 °C limit, 82 % of coal, 50 % of gas, and 33 % of oil should stay in the ground. These are crazy numbers given how much effort we devote to NEW fossil fuels searching and expending the current extraction (oil sands, shale oil, shale gas, etc.)

    So take home message? We have TOO LITTLE fossil fuels for our collective greed, and we have TOO MUCH fossil fuels for our collective atmosphere.



  3. Everything is quite fine, oil price crash has not impacted shale oil industry (yet). Goldman Sachs reports:

    Oil Has To Plunge Even Further Before The Shale Industry Gets Seriously Damaged

    Goldman Sachs researchers say that oil prices would have to drop to $40 per barrel for six months, down another 15% from their current level, to "keep capital sidelined". That's the level at which Goldman says high yield defaults might start.

    So we are not there yet.

  4. Goldman Sachs, who could be more trustworthy than investment bankers?



Ugo Bardi is a member of the Club of Rome and the author of "Extracted: how the quest for mineral resources is plundering the Planet" (Chelsea Green 2014). His most recent book is "The Seneca Effect" (Springer 2017)