<A rel=nofollow name=20080105>Profitability and $100 oilby Steve Austin - 2008/01/05 $100 per barrel: the line was finally crossed on January 2nd 2008. What does this imply for profits of oil producing nations? In order to run some numbers we have to consider a key measure called the break-even price which is the amount of money it takes to extract 1 barrel of oil.
The break-even price is the first thing oil companies establish in order to determine if drilling a new well makes financial sense. From the break even price, profitability can easily be determined with the following formula:
Profitability =
(Price of Oil - Break Even Price) / Break Even Price
For example with oil at $100 and a break even price of $50, profitability is 100%. But with oil at $60 and the same break even price, profitability drops to 20%
By dialing their target profitability first, oil companies then determine if a new drilling project is feasible. Needless to say, with oil retailing now at $100, more wells will be drilled in deeper, harder to reach places than were previously profitable.
The following table provided by the Bank of Kuwait gathers current reported break-even prices of major oil producing nations:
Oil Break-Even PricesNationUS$/BarrelBahrain40Kuwait17Saudi Arabia30U.A.E.25Oman40Qatar30Canada's oil sands33Based on the formula, profitability of these countries' oil operations are in order:
Profitability at $100/barrel oilNationBreak-Even PriceProfitabilityKuwait17488%U.A.E.25300%Saudi Arabia30233%Qatar30233%Canada's oil sands33203%Bahrain40150%Oman40150%
This level of profitability explains the recent $7.5 billion placement in troubled Citibank from the Abu Dhabi Investment Authority, the $1.8 billion investment in UBS by a strategic Middle East investor and the 20 percent acquisition of the London Stock Exchange by the tiny nation of Qatar.
High oil prices have allowed Gulf Cooperation Council (GCC) countries to boost their foreign assets to more than one trillion dollars during the 2002-2006 period. With a looming recession (read "western assets on sale") and high oil prices we can expect this trend to increase
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And after carefully analyzing the sage writings of 73% of oil industry analysts, I "expect" to be the King of Spain before the second out in the third inning of the final Red Sox game in 2013.
In the Wall Street Journal yesterday there was an article about how a lot of analysts also think it will go the other way around, and that this is the biggest "bubble" to ever happen. One predicted $80 in July.
Not saying I agree with that, just that there are a lot of varied opinions out there on this, like anything else.
In the Wall Street Journal yesterday there was an article about how a lot of analysts also think it will go the other way around, and that this is the biggest "bubble" to ever happen. One predicted $80 in July.
Not saying I agree with that, just that there are a lot of varied opinions out there on this, like anything else.
I read that article too, pretty good. The funny thing is even at $80/barrel its inflated
In the Wall Street Journal yesterday there was an article about how a lot of analysts also think it will go the other way around, and that this is the biggest "bubble" to ever happen. One predicted $80 in July.
Wow, I hope they are right, but I don't think that July is even possible. September or October sounds optomistic to me, but I still think it is going to continue going up for longer than that. I doubt we see sub $100 until at least Fall 2009.
It IS possible that oil could be at $80 by Jul. Improbable, but not unbelievable.
What WILL happen, however, even if oil is $80 by Jul '08, by Jul '10, and beyond, oil will be WAY more expensive: $150? $180? $220? $250, or maybe even higher.
Oil going all the way down to $80 would be a temporary dip.
Oil prices will go up and up and up, in the long run, until we dramatically curtail using oil as a transportation fuel. Then, it will probably go down to $50-$80 and stay there, and it won't matter, because oil will be used to make stuff, not burn in our automobile tanks.
cliff
YIP
__________________
TRY. It is what God wants, and it is all you CAN do!
"T. Boone PIckens said, a couple of years ago, that oil would go to 100 dollars per barrel. Everyone said he was crazy. Now Goldman Sachs predicts 150 to 200 dollars per barrel in 2 years.
If this happens, that will probably be the end of the airlines if for no other reason than people won't be able to afford to drive to the airport, much less anything else. Nobody with any money rides on airliners anymore, anyway, since they've all gone to fractionals and other private jets. The chicken dancers will have to go back to trains and busses, where they will find the TSA waiting for them with electrified rectal probes, full body x-ray scans, etc.
The airlines, even as we see them today, may be history already."
Check the DOE site about the strategic petrolium reserve. The Bush administration has been taking oil out of the market and filling holes in the ground. Since 2001 over 200 million barrels have been taken out of the market. In 2005 the reserve was upped to 1 billion barrels.
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