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Wednesday, January 13, 2016

OIL PRICE AT 12 YEAR LOW

Bloomberg Business today shows oil prices initially rising, then heading back down towards the $30/barrel mark.  The visual I like to use shows the historic price of oil with explanations, the red line indicating the inflation adjusted price:


Petroleum dropped below $30/barrel yesterday.  Keep in mind, though, that anything worth $30 in 2004 is today valued at anywhere between $36 and $42, depending on what parameter you use to calculate inflation.  

The year to remember, though, is 1998, when oil dipped to $12.46/barrel.  That is equivalent to around $20/barrel in 2015 dollars.  What is surprising to many, though, is that $3 in 1973, the year of the First Energy Crisis, would have been worth around $14 in 1998 dollars.  Thus, oil was cheaper in 1998 than 1973.  When inflation adjusted to 2015, $3 is worth anywhere between $12.40 to $36.40, so by some measures, the price of oil today could be said to be about what the price was in 1973.  If all this confuses you, some experts are saying that the price of oil could drop to as low as $10/barrel.  Ten dollars per barrel!!!  For one, Iran hasn't really fully returned to the marketplace yet, and they will soon become #2 to Saudi Arabia.

Part of the reason for these low prices has to do with supply and demand:


There has simply been an oversupply of oil for two years.  Second, Saudi Arabia has refused to reduce production to bankrupt nonconventional fossil competitors, such as fracked products, tar sands and, even, renewable energy.  Here is what it costs to produce oil/barrel:
  • Saudi Arabia and Iran  $10
  • Other Middle East and North Africa  $20
  • Other parts of the world  $30-$40
  • USA  $36
  • Lowest fracked shale oil  $40
  • More likely cost of fracked shale oil  $60-$90
  • Canadian tar sands oil  $85-$105
Here is another look at what it costs to produce oil:


(Click on bar graph to actually read it.)  A country like Russia is particularly hurt by these low prices because their economy is weak anyway, and to actually lose money for every barrel produced will soon result in serious consequences.  Today Dmitry Medvedev (remember, he is Russia's Prime Minister) said that tumbling oil prices could force the country to revise their current budget.

Of course, renewable energy companies are also hurting, especially if into biofuels.  Here, Renewable Energy World's 10 clean energy stocks for 2016:


Sorry, but you've got to click on the article to really read that chart.

  • Climate change driven weather variability
  • China's softening economy
  • Continued low natural gas prices
  • Solar lease plateau
  • In the U.S., continued pushback on net metering.

Click on that article to see the other ten.

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