Get ready it's starting again

[RustyJC]

Here's a longer term look at rig count versus crude oil prices. The correlation would be easier to see if the oil prices were shown in inflation-adjusted instead of actual dollars.

Rusty

[read & learn]

I understand supply and demand, but as for the rigs that have been shut back down, were they shut down because of the expense to get the oil out now that the price has dropped.
Maybe one of our members who have/are involved in the oil industry can explain good pumping wells compared to wells that are hard to get oil out of.
Thanks.

[Lindsay Richards]

The majority of drilling wells are dry holes. Much of the good areas (as determined by the geogologist) are off limits for political reasons. The entire coastline of the US including Alaska except for a small area off LA and TX have just been put off limits. The number of drill rigs in mothballs I would think is also related to the high sucess areas have been put off limits. Congress wants us to drill where there is less chance of actually finding the evil oil. There are huge proven reserves off CA and and FL.

[hamguy]

Originally Posted by Lindsay Richards

Record profits is a relative term. Back in the 1960‘s there were about 30 oil companies. Today there are 5. They went thru a huge period of mergers due to government problems. Exxon our largest oil company is number 14 in the world. There are two ways to report profit. Total dollars and percentage of sales. Investors and businesses report it as percentage of sales as this is what is important and indicates the health of the business. News people and sensationalist report whichever one satisfies their agenda. The remaining 5 oil companies had profits of 9.3% up from their traditional average of 7% which is about 2% below the national average for all companies of 9%. If you look at their stock prices, you can see that the knowledgeable investor does not see them as a great growth stock. Exxon has 180,000,000 American stockholders including just about everybody who has a company or public pension, IRA, 401k which includes almost al police, fire, nurses, teachers, and I would imagine RV’ers. The executives of oil companies own about 1 ½ % o outstanding stock, a small percentage.
Congress had made it just about imposable for oil company to look for more oil even though the American people want us get out own instead of buying from the people who hate us. The price of oil is down due to the recession and huge drop in demand. When this if over, expect huge increases in pricing. Politicians always have to have a bogyman to blame to defect blame from themselves. The problem isn’t free enterprise, it is regulation and stupid moves by politicians. If given a free hand, (with sensible regulations), there would have been no oil crisis and we would not be spending the $700 billion a year in foreign purchases for something we are loaded with right here. Next time Katie Kuric rails on about the big bad oil companies realize that she is protecting the liberal politicians who are deliberately reducing the oil we produce in the name of global warming and what she says, is related to her agency instead “the rest of the story“..

Congrats!!! Very, very well stated and good points all. I just hope most people are able to understand.

[read & learn]

As the chart shows in 08 there were about 2,000 U.S. active rotary rigs but 1 year later that number is down to 1,000 rigs.
Why are these rigs not producing domestic oil.
Help me out 2,000 rigs working oil $130+ a barrell, 1 year later 1,000 rigs working $50 a barrell. If the other rigs were still working pumping domestic oil how much import oil would we not use.

[Lindsay Richards]

Why are these rigs not producing domestic oil.

The responsibility of the management of the oil companies is to give a good return on investment to the owners (shareholders) of the company. We would like to think their goal would to what was good for the country. Doesn’t work this way in private business. There are about 8000 producing wells in the Gulf , but only small percentage of wells drills become producing wells. This has been made lots worse by the fact that almost all of the high promise areas have been placed off limits. A well can produce from 10 or so bls day up to 5,000 bls day, so number of wells is not a good way to measure thing. One platform can have up to 75 wells on it thru the modern slanted drilling methods. This are getting set up now in Cuba by the Russians and the Chinese to get into the oil fields off of the Florida keys. Russia has reported wells up to 45,000 feet deep. They are the real technical experts in the business. Oil is found by exploration and then refined into specific area. This has already been done offshore in CA and in ANWR. We know where the oil is and exactly how to get it. Much of the long environmental permitting has been done. The congress has put it off limits. In Alaska for example, we are ready to in ANWR with resources of over 10 billion bls and the oil fields already laid out. 2000 acres out of 19,000,000 acres would be all the drilling space required. The field is 75 miles from the Alaskan pipeline which was designed with a capacity of 2.2 million bls a day and is now only carrying only 700,000 day. The House of Representatives met did a study and we could have the pipeline up to capacity in 3 years with streamlined America first regulation scheme. Now the huge mount of natural gas from oil is flamed (burned as it escapes from the oil as the tremendous pressure is relieved). There is a plan to recoup this gas at the oil company expense, but the federal government is messing around with this almost free huge amount of gas, The cost ot the natural gas pipeline is $40 billion. When you see the facts, it no wonder why the rest of the world thinks we are crazy. Now we are saying CO2 is a harmful pollutant and are going to tear up what’s left over it while the rest of the world keeps on using cheap fossil fuels.

[RustyJC]

Originally Posted by read & learn

Help me out 2,000 rigs working oil $130+ a barrell, 1 year later 1,000 rigs working $50 a barrell. If the other rigs were still working pumping domestic oil how much import oil would we not use.

Among many other factors:

1. We're not necessarily short on supplies of oil, but rather we're pretty well out of new domestic cheap oil. Offshore drilling in deep Gulf of Mexico leases, drilling in marginally producing fields, production of shale oil and oil sands, etc. is economically viable when oil prices are high, but not when oil prices are low. Scraper wells (wells that might produce only a few barrels a day) are routinely shut in when prices drop simply because they cost more to operate than they return in revenue on low oil prices.

2. Oil prices dropped because consumption dropped. If supply exceeds demand, there's little incentive to develop more supply, domestic or foreign. Therefore, active rig counts drop.

Rusty

[hamguy]

It is apparent from the reading that many Americans are woefully ignorant of commodity economics. I firmly believe (I do NOT 'feel'), schools should teach a mandatory course in commodity economics and make certain the coming crop of mouth breathers at least understand something of the truth, not the BS as presented by the likes of Katie Koric.

The principles are quite easy to understand once you subtract the hate politics from the picture.

[read & learn]

Lindsay Richards and RustyJC thank you both for your anwsers. I think it cleared up why we shut down rigs. It's cheaper to buy the Oil from somewhere else.
Hamguy your response it one of the reasons for this thread, so members of our iRV2 family that have knowledge of the oil industry can educate the rest of us. As for your feelings for K.C. a long time ago I was told believe half of what you read and only 25% of what you hear on TV. They all are one sided.

[Chickadee]

hamguy:

So,...what are the salient points of "commodity economics" which relate to the supply and demand for oil that we should understand?? I'm not what you refer to as a "mouth breather" (whatever that is), but I do like to learn from others.

All I currently understand is that a.) oil producers need to realize a reasonable profit; b.) consumers (like us RV'rs) don't (and most often CAN'T) accomodate higher pump prices and consequently cut back on our demand. So....which came first (chicken vs. egg thing)? Did oil producers raise the price in order to obtain a "reasonable profit" for their efforts,....or....did consumers cut back on demand causing producers to reduce production??? I'm one who (as you said) apparently doesn't understand "commodity economics." Can you help?? Steve & Lynette

[Lindsay Richards]

Crude oil prices depend on world wide supply and demand. The US has over 20% of the demand and only 5 % of the daily production. We tend to think of it as a US thing, but it is definitely world wide thing. Most countries have reduced their demand a lots more than we have as the recession has hurt the poorer countries a lots more than us. Once the recession is over, and usage levels get back to the 85 million bls day, then the US could drastically affect supply by adding an additional 4 million bls a day from existing proven reserves in ANWR, CA, and in the Eastern Gulf. This would decrease the price pretty drastically. The huge amounts of shale oil (more in 3 western states than all of the oil man has used to date in history) have a high production cost where prices of at least $80 a bl is needed to proceed. Unfortunately, congress has put the kibosh on any addition research into this huge American resource because it produces the same dreaded poison that all animals breathe out (CO2). When the recession is over and gas prices start to rise again to very high levels, I hope the American citizens will realize congress’s part in this. The official position of our government is that oil, coal, natural gas, and nuclear are bad and to be avoided at all cost to the consumer and wind, solar, biofuels are good and are to be heavily subsidized with taxes on the fossil fuels. These taxes will be limited of course to anybody who uses electricity, drives a vehicle, or lives in a heated or cooled home. Right now wind, solar, and biomass total less than 2% of our total energy sources and are hugely expensive. Other countries and our manufacturing competitors such as China, Russia, and India, think we are crazy and laugh at us. Don’t think that the huge fuel guzzlers we all have are not going to be one of the first targets of the alarmist.

[RustyJC]

Originally Posted by Chickadee

Did oil producers raise the price....

.....and herein lies the most difficult hurdle to get past in understanding the energy industry.

The major oil companies, OPEC and the national (government-owned) oil companies don't control prices. If they could, we wouldn't have seen crude oil prices approaching $30/bbl just a few months ago, and we wouldn't have seen crude oil prices over $140/bbl last summer. The major oil companies realize quite well that inordinately high price levels are unsustainable since they lead to contraction in consumption and economic recession (just like we're seeing), nationalization of assets by the government oil companies (as took place in Venezuela, Bolivia, Russia, etc.) and development of alternative energy technology. The majors would much rather see stable $80/bbl oil than the feast-or-famine price cycles we've experienced over the last 3-4 years.

Crude oil is a commodity, and we compete with the rest of the world for supplies of crude oil and refined products. One of the largest commodity trading exchanges in the world for energy is the New York Merchantile Exchange (NYMEX) - I posted a link earlier in this thread that I'll repeat HERE to Bloomberg's Energy Prices. Note all the references to NYMEX spot and future prices up and down the page - these are bulk wholesale prices that don't include any taxes, transportation (beyond point of delivery) or distribution costs and (that nasty word) profit. The markets (such as NYMEX) set the basic price levels for crude oil and refined products based on actual and projected supply and demand issues.

One of the this morning's headlines on the Bloomberg page linked above pretty well encapsulates all that I've discussed above:

NYMEX Natural Gas Rises on Expectation of Reduced Supply as Drilling Slows

Supporting this headline, the Baker-Hughes weekly U.S. active drilling rig count in this morning's Houston Chronicle has fallen even farther to 975 rigs.

Rusty

[hamguy]

Originally Posted by read & learn

Lindsay Richards and RustyJC thank you both for your anwsers. I think it cleared up why we shut down rigs. It's cheaper to buy the Oil from somewhere else.
Hamguy your response it one of the reasons for this thread, so members of our iRV2 family that have knowledge of the oil industry can educate the rest of us. As for your feelings for K.C. a long time ago I was told believe half of what you read and only 25% of what you hear on TV. They all are one sided.

This thread s certainly well presented and has learned, well reasoned comments. BUT (there is always a but), we still see responses steeped in hate politics and ignorance.

Economics cannot be learned in snippets. Nor can it be learned at our uber-left wing E-schools whose profs are similarly steeped in hatred. Can you imagine Ward Churchill teaching ethics? Oh, he did teach ethics but very badly!

In fact, I wouldn't have a clue as to where an unbiased person could get a good, rounded education in economics.

[Chickadee]

Whoa!!!

I agree,.....leaving the hatred, politics, mind controllers, etc., out of the discussion is a VERY good idea. But, for the uneducated, confused and/or slow folks like me, could you guys bear with me by taking it ONE step at a time???

TO START:

1.) So....a reservoir of crude is discovered somewhere on this earth (doesn't matter where at this point in my query) by some outfit that is in the business and invested BIG bucks in this process of finding such reservoirs.

2.) Then, some producer, after crunching numbers (including but not limited to supply and demand numbers) decides that this reservoir source is worth drilling into for extracting barrels (bbls) of crude and proceeds to spend Big bucks extracting said crude.

(Am I way off so far, or is this pretty o.k. so far??? In general??)

3.) So,...up comes this barrel of crude into the sunlight, AND, into the economic environment of mankind for the first time in millions of years. Speculators not withstanding, this barrel of crude NOW becomes (or is christened)...as a COMMODITY!!

(NOW....the fun begins)

4.) (Question).... So for you guys that know....WHAT is the worth (ie., value in U.S. Dollars) of THAT SINGLE BARREL of crude at this point????

(BTW, I know "it depends", but can ya give a snapshot of WHAT factors go into determining the value of this barrel of crude as it hits the sunlight??? Generic and vague won't help in gaining an understanding of "commodity economics", )

Will anyone try to help out at this point? (to be continued...maybe).

Thanks. Steve