{"id":13064,"date":"2015-10-06T06:25:37","date_gmt":"2015-10-06T11:25:37","guid":{"rendered":"http:\/\/olduvai.ca\/?p=13064"},"modified":"2015-10-06T06:25:37","modified_gmt":"2015-10-06T11:25:37","slug":"too-many-wildcards-for-oil-markets-to-settle-yet","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=13064","title":{"rendered":"Too Many Wildcards For Oil Markets To Settle Yet"},"content":{"rendered":"

Too Many Wildcards For Oil Markets To Settle Yet<\/a><\/h3>\n

Could the price of oil be a value such that the current quantity produced exceeds the current quantity consumed? The answer is yes, and indeed that has been the case for much of the past year.<\/p>\n

Suppose, for illustration, that even at a price of $40, there would be enough producers with sunk costs on projects already begun who would be willing to bring sufficient oil to the market to fully meet current consumption. But suppose further that at a price of $40, few new investments are undertaken, so that next year supply is much lower than it is this year, such that next year\u2019s production would equal next year\u2019s demand at a price of $60.<\/p>\n

What\u2019s wrong with this picture? Under the above scenario, if you were to buy oil today at $40, store it for a year, and sell it next year for $60, you\u2019d make a huge profit. And if right-minded capitalists tried to do exactly that in huge volumes, the price of oil today would be bid up above $40, as the inventory demand is added to current consumption demand. As that oil is sold next year, it would bring the price next year below $60. In equilibrium, the difference between this year\u2019s price and next year\u2019s expected price should be close to the storage cost.<\/p>\n

That arbitrage is clearly an important aspect of what has been going on over the last year. In response to lower prices, capital expenditures in the oil patch are being slashed. The number of drilling rigs active in the U.S. areas associated with tight oil production is only 43 percent of its level a year ago.<\/p>\n

Related:\u00a0Suncor Announces Bid For Canadian Oil Sands<\/strong><\/a><\/p>\n

\"ActiveRigs\"<\/p>\n

Number of active oil rigs in counties associated with the Permian, Eagle Ford, Bakken, and Niobrara plays, monthly Jan 2007 to Aug 2015. Data source:\u00a0EIA Drilling Productivity Report.<\/a><\/em><\/p>\n

…click on the above link to read the rest of the article…<\/p>\n","protected":false},"excerpt":{"rendered":"

Too Many Wildcards For Oil Markets To Settle Yet Could the price of oil be a value such that the current quantity produced exceeds the current quantity consumed? The answer is yes, and indeed that has been the case for much of the past year. Suppose, for illustration, that even at a price of $40, […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2,3],"tags":[9635,8602,589,592,1775,595,596,1427,798],"class_list":["post-13064","post","type-post","status-publish","format-standard","hentry","category-economics","category-energy-2","tag-arbitrage","tag-econbrowser","tag-oil-demand","tag-oil-price","tag-oil-price-collapse","tag-oil-production","tag-oil-supply","tag-supply-and-demand","tag-tight-oil"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/13064","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=13064"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/13064\/revisions"}],"predecessor-version":[{"id":13065,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/13064\/revisions\/13065"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=13064"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=13064"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=13064"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}