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Effect of cheap oil prices

Discussion in 'Environmental Discussion' started by irrational, Dec 15, 2014.

  1. irrational

    irrational Member

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    Many theories have been suggested in both popular media and social media as to why OPEC refuses to cut production, and thusly is driving the price of oil down.

    I'm a firm believer that it's primarily a tactic to put pressure on Russia, however another thought has recently crossed my mind that I haven't seen mentioned before;

    Could cheap oil prices simply be a technique to stifle or slow interest in alternative fueled vehicles?

    It sounds like a total "tin foil hat" theory, but it does make me pause and wonder - especially with US consumers shocking falling back into (already?!?!?) the trap of SUVs;

    As Gas Prices Fall, Auto Buyers Abandon Greener Cars - NationalJournal.com

    So, what say you?
     
  2. austingreen

    austingreen Senior Member

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    Iran and Russia have been the primary targets of the mainly Saudi move. This also hurts venezuala a great deal where oil is more costly to produce. I would not say this move is OPEC as a whole but a power struggle with in OPEC.

    But make no mistake this is also targeted to slow the North American shale boom. At current prices development of shale will slow. Say it costs $40 to produce a bbl of shale oil, even at $57 there is good profit, but this often needs pipeline infrastructure which will cut into that $17/bbl profit. At $80/bbl soemthing that could pop again in a year or two its $40/bbl profit. The more an shale a company develops may be leaving future profits on the table. Many shale and oil sands plays cost $65/bbl to explore and produce, I'm sure these projects will get capped if the price doesn't bounce soon.

    The other side is yes, lower prices slow the per capita drop in consumption. So Saudi's plan is higher demand in the future when they can raise prices.
     
  3. Ashlem

    Ashlem Senior Member

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    This now presents an interesting conundrum for OPEC. Do they keep production levels up, or do they slow it down?

    They would have to keep prices low for years to drive out North American competition completely. But I doubt they can do that since some of them are hurting from these "low" prices right now. And if they slow production down to raise prices, the US and Canada will likely pick up the slack, and thus take away market share from OPEC. When oil costs $100+ a barrel, suddenly fracking and digging tar sands that costs $40-80 will still yield a nice profit margin.

    True, low gas prices is slowing adoption of green cars, but EV's have also progressed significantly in the last few years. It's not like the Volt, Leaf, Prius, I3, Model S, etc are just going to vanish into thin air because of low gas prices. Assuming automakers continue R&D into EV's, eventually they will reach price parity with ICE cars, and the average joe and jane will find them to be viable alternatives to gas guzzlers, especially if gas prices shoot back up quickly in a short period of time.

    Hopefully automakers will exploit this and educate the average joe and jane on how good owning a plug-in will be, and not needing as much gas, or any at all, while still having a vehicle that is a viable alternative to a gas guzzler.
     
  4. GregP507

    GregP507 Senior Member

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    I think there are prizes in store for all the conspirators in this endeavor. The US state department will see Russia, Iran, ISIS, all be hurt by lower oil prices. The horizontal-drilling boom in North America and elsewhere will be hurt bad also, which OPEC wants to see. For Big Oil, this will knock out a whole tier of smaller players, leaving the field clear for a really big boost in oil prices when they eventually recover.
     
  5. irrational

    irrational Member

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    So true! That's also why it amazes me to read about people (so quickly) forgetting about high gas prices, and buying huge vehicles.

    Toyota just need stop hurry up with a second generation Prius v, with a larger seating capacity... If they do that, convincing my wife to dump the Kia Sedona (and it's low-20s MPG) will take all of 3 minutes. :)
     
  6. bisco

    bisco cookie crumbler

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    the problem for opec is their need for cash. they spend like drunken sailors (unlike the u.s. government;)) and cannot afford to slow exports.
     
  7. wjtracy

    wjtracy Senior Member

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    What's happened since 2006 (gaso was $2 when we bought the Prius), gaso prices went up a whole lot reflecting int'l tensions and China/India growth. Gaso became more expensive that elec in the US, and everyone assumed and predicted these trends would continue unabated ad infinitum (sp?)
     
  8. Sergiospl

    Sergiospl Senior Member

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  9. GregP507

    GregP507 Senior Member

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    Saving gas is always a good idea, whatever the price.
     
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  10. cyclopathic

    cyclopathic Senior Member

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    From what I read the NA shale is the primary target. Russia and Iran have pretty low costs, so while it is hurting them, on long run they are not going out of business. The NA shale has a break point ~$85/bbl, so it already had a huge impact. If it keeps up some shale producers will be going defunct on payments and filing bankruptcy.

    The Keystone and repel of US ban on oil export are the primary targets of Saudies. They gave up on NoAm market, but they still want to protect their other world markets. And to do so they want to delay rise of MEX/US/CAN block.
     
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  11. GregP507

    GregP507 Senior Member

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    Personally, I hope the Keystone never gets built. Shipping bitmen thousands of miles, across almost an entire continent, to be refined and shipped thousands of miles back in the opposite direction makes no economic sense, except for those wanting a virtual refining monopoly at the Texas Gulf.
     
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  12. cyclopathic

    cyclopathic Senior Member

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    or if you wanna put it in tanker and ship it out.

    Even if it is hard to compete with Saudi on oil costs, cut the middle man and the final product is very competitive when it is delivered to EU or far east.
     
  13. GregP507

    GregP507 Senior Member

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    Until they build a pipeline across the Atlantic, tankers are the only way to get our oil to Europe. They don't like the foment that results from dealing with the Middle East, and they are annoyed with Putin for his adventures in Ukraine, so I think North American oil is a good option for them. If any risk of an oil spill is unacceptable to them, they'll have to find a way to do without oil fairly soon.
     
    #13 GregP507, Jan 2, 2015
    Last edited: Jan 2, 2015
  14. wjtracy

    wjtracy Senior Member

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    ...the lower price certainly puts a damper on new rigs.

    Article in Pittsburgh Post Gazette was saying wholesale price as low as well, getting down to approaching $1 out of Chicago but out of NY more like $1.60 so those of us in Northeast paying more right now vs. $1.60/gal at pump some spots in Ohio. But Pittsburgh up in the $2.50 range so they are ticked off. But Pittsburgh gets the NY price. Ohio gets the Chicago price.
     
  15. cyclopathic

    cyclopathic Senior Member

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    Oil and liquid oil products are no prob, NG is something you build pipelines for. And if EU to build pipeline they would build one to Caucus/Middle East via Turkey, close to home and alot cheaper. BUT while pipeline is cheaper than tankers, the price difference isn't as big as on NG, so in many cases it is hard to justify building expensive seabed pipeline for oil products.
     
  16. cyclopathic

    cyclopathic Senior Member

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    Oil Falls Below $50: Goldman's Guru Says the Crash Is Right on Time - Businessweek
    quote from business week:
     
  17. GregP507

    GregP507 Senior Member

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    Watch for a slew of takeovers among those producers in the coming months...
     
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  18. cyclopathic

    cyclopathic Senior Member

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    yeap that's how it works big fish eat small.

    Even if there is no money to make (though they probably will by closing down and selling assets), kill competition before it becomes a problem.
     
  19. GregP507

    GregP507 Senior Member

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    Smart money is buying when everyone else is selling.
     
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  20. lindali

    lindali New Member

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    This is a good news for all car owners