fatpitch2

Oil Futures Market: Unwinding the Bubble

Jimmy46:

I understand your point, and it is well taken, I appreciate it.
Two questions for you if you have time:

1) Clearly the "cash cost" of production varies considerably depending on the source; I would think that the middle east has the lowest cash costs while the Canadian oil sands might have some of the highest....???

Do you have any data on the cash costs for major producers?

2) If I were a producer and had cash cost less than current market price I would throttle production to the bare minimum that was required to cover my expenses and leave the rest in the ground for a better day and a higher price. Perhaps there are few producers with this much leeway, and they are all producing as much as they can in an attempt to cover expenses... ???
On the other hand, some producers having higher variable costs of production (oil sands?) might be able to more easily throttle production and still remain viable. Are there enough producers (any?) in the category to make a difference?

Thanks!





On Dec 29 05:39 PM jimmy46 wrote:

> Why does oil keep going down? Surely, at under $40, marginal producers
> should just stop production and wait until price is good enough for
> them.""&quot.....
>
> For some of the recent deep water projects, the TOTAL COST OF PRODUCTION
> may be $70 or more.
>
> But, most of that cost is upfront drilling for the oil,
> once production starts the CASH COST OF PRODUCTION is probably no
> higher than for shallow water oil.
>
> CASH COST is what drives the extraction industry in the short term,
>
> TOTAL COST is only used for deciding whether to START a new project.
>
>
> RESULT: NO ONE IS GOING TO HOLD PRODUCTION DOWN TILL PRICES GO HIGHER.
>