{"id":24540,"date":"2014-12-12T16:36:47","date_gmt":"2014-12-12T21:36:47","guid":{"rendered":"http:\/\/www.rightwinggranny.com\/?p=24540"},"modified":"2014-12-12T16:36:47","modified_gmt":"2014-12-12T21:36:47","slug":"behind-the-drop-in-oil-prices","status":"publish","type":"post","link":"https:\/\/www.rightwinggranny.com\/?p=24540","title":{"rendered":"Behind The Drop In Oil Prices"},"content":{"rendered":"

Steven Hayward posted an article at Power Line<\/a> today about the recent drop in oil prices. As of 4 pm today, oil was listed at about $58 a barrel. So what does this mean?<\/p>\n

The article reports:<\/p>\n

I decided to reach out to the CEO<\/a> of a very successful private oil exploration<\/a> company for his inside opinion, and this is what he tells Power Line:<\/strong><\/p>\n

Our Rate of Return<\/a> (ROR) drops to 10% on our wells at $55 oil. \u00a0However, this assumption assumes no drop in costs to drill wells and no contraction in the large differential ($10 to $12 per barrel) between Bakken and WTI oil. \u00a0In reality our ROR would actually be above 10% at $55 WTI oil price as our costs to drill would also come down. \u00a0There are plenty of drilling locations that would have above 10% ROR at $40 oil. \u00a0Even more drilling locations would require $70, $80, or $90 oil prices for that ROR. \u00a0Of course, drilling will slow down long before you get down to a 10% ROR. \u00a0Most will want at least a 20% ROR. \u00a0Of course the quality of the operator matters in addition to the drilling location. . .<\/strong><\/p>\n

Bottom line is that the Saudis<\/a> want to chill investment in new oil supply<\/a> to help protect OPEC\u2019s future. \u00a0In round numbers we have had about 5 MBOPD increase in world oil demand<\/a> over the last 5 or 6 years. \u00a0Over the same time period US<\/a> oil production has grown from nearly 4 MBOPD (from 5 to 9 MBOPD) \u2014 80% of the increase in WORLD demand! \u00a0This is NOT good for OPEC. \u00a0I suspect that we will have ugly oil prices ($60 \u2013 $75) for around a year as that is long enough to stop many current oil supply investments and, more importantly, serve to chill the appetite for future large investments in oil supply growth (deep water, arctic, marginal shale, marginal tar sands, etc) which is the Saudi goal in my opinion. \u00a0I do not believe that the current price ($65) is a sustainable price going forward. \u00a0It would not encourage enough new supply to balance world demand which itself would be goosed upwards with the lower prices. \u00a0I suspect that after this ugly price period ends, we likely see oil bouncing around the $75 to $95 range or something like that.<\/strong><\/p>\n

Of course all of this depends on the state of world economy which has many significant challenges such as at the required unwind, or more likely significant revamping, of the unsustainable entitlement states over the next two decades. \u00a0I personally believe that the Euro currency<\/a> was a very idea from the start and is damaging for Europe and unsustainable as an institution. \u00a0The unwind of the Euro within the next 5 or 10 years could also cause significant economic headwinds for the world economy.<\/strong><\/p>\n

\u00a0This game has been played before–when America is reaching energy independence, lower the price to avoid further exploration. We are fools if we fall for this. As soon as OPEC thinks America is not interested in developing its own resources, the price will go back up to where it has been in recent years. Regardless of the price, energy independence is always a good idea for security reasons. Energy independence also frees America up to support democracies in the Middle East rather than dictatorships.<\/p>\n","protected":false},"excerpt":{"rendered":"

Steven Hayward posted an article at Power Line today about the recent drop in oil prices. As of 4 pm today, oil was listed at about $58 a barrel. So what does this mean? The article reports: I decided to … Continue reading →<\/span><\/a><\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[2767,314,1886,689,342,285],"class_list":["post-24540","post","type-post","status-publish","format-standard","hentry","category-uncategorized","tag-bakken-formation","tag-north-dakota","tag-oil-prices","tag-opec","tag-saudi-arabia","tag-united-states"],"_links":{"self":[{"href":"https:\/\/www.rightwinggranny.com\/index.php?rest_route=\/wp\/v2\/posts\/24540","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.rightwinggranny.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.rightwinggranny.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.rightwinggranny.com\/index.php?rest_route=\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.rightwinggranny.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=24540"}],"version-history":[{"count":1,"href":"https:\/\/www.rightwinggranny.com\/index.php?rest_route=\/wp\/v2\/posts\/24540\/revisions"}],"predecessor-version":[{"id":24541,"href":"https:\/\/www.rightwinggranny.com\/index.php?rest_route=\/wp\/v2\/posts\/24540\/revisions\/24541"}],"wp:attachment":[{"href":"https:\/\/www.rightwinggranny.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=24540"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.rightwinggranny.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=24540"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.rightwinggranny.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=24540"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}