{"id":16708,"date":"2016-01-19T19:21:51","date_gmt":"2016-01-20T00:21:51","guid":{"rendered":"http:\/\/olduvai.ca\/?p=16708"},"modified":"2016-01-19T19:23:49","modified_gmt":"2016-01-20T00:23:49","slug":"16708","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=16708","title":{"rendered":"Why oil under $30 per barrel is a major problem"},"content":{"rendered":"

Why oil under $30 per barrel is a major\u00a0problem<\/a><\/h3>\n
A person often reads that low oil prices\u2013for example, $30 per barrel oil prices\u2013will stimulate the economy, and the economy will soon bounce back. What is wrong with this story? A lot of things, as I see it:<\/div>\n
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  1. Oil producers can\u2019t really produce oil for $30 per barrel<\/b><\/li>\n<\/ol>\n

    A few countries can get oil out of the ground for $30 per barrel. Figure 1 gives an approximation to technical extraction costs for various countries. Even on this basis, there aren\u2019t many countries extracting oil for under $30 per barrel\u2013only Saudi Arabia, Iran, and Iraq. We wouldn\u2019t have much crude oil if only these countries produced oil.<\/p>\n

    \n

    \"Figure<\/a><\/p>\n

    Figure 1. Global breakeven prices (considering only technical extraction costs) versus production. Source: Alliance Bernstein, October 2014<\/p>\n<\/div>\n

    2. Oil producers really need prices that are higher than the technical extraction costs shown in Figure 1, making the situation even worse.<\/strong><\/p>\n

    Oil can only be extracted within a broader system. Companies need to pay taxes. These can be very high. Including these costs has\u00a0historically brought total costs for many OPEC countries to over $100 per barrel<\/a>.<\/p>\n

    Independent oil companies in non-OPEC countries also have costs other than technical extraction costs, including taxes and dividends to stockholders. Also, if companies are to avoid borrowing a huge amount of money, they need to have higher prices than simply the technical extraction costs. If they need to borrow, interest costs need to be considered as well.<\/p>\n

    3. When oil prices drop very low, producers generally don\u2019t stop producing.<\/strong><\/p>\n

    <\/span>There are\u00a0built-in delays in the oil production system. It takes several years to put a new oil extraction project in place. If companies have been working on a project, they generally won\u2019t stop just because prices happen to be low. One reason for continuing on a project is the existence of debt that must be repaid with interest, whether or not the project continues.<\/p>\n

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

    Why oil under $30 per barrel is a major\u00a0problem A person often reads that low oil prices\u2013for example, $30 per barrel oil prices\u2013will stimulate the economy, and the economy will soon bounce back. What is wrong with this story? A lot of things, as I see it: Oil producers can\u2019t really produce oil for $30 […]<\/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":[3],"tags":[195,11845,1233,588,589,592,1775,595,596,600,1232],"class_list":["post-16708","post","type-post","status-publish","format-standard","hentry","category-energy-2","tag-debt","tag-demand-and-supply","tag-gail-tverberg","tag-oil","tag-oil-demand","tag-oil-price","tag-oil-price-collapse","tag-oil-production","tag-oil-supply","tag-opec","tag-our-finite-world"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/16708","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=16708"}],"version-history":[{"count":2,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/16708\/revisions"}],"predecessor-version":[{"id":16710,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/16708\/revisions\/16710"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=16708"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=16708"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=16708"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}