Gas prices....explain it to me without your tin-foil hat:

[george graves]

I assume OPEC is trying to monkey with the market.

Why? And what is the end game?

At first I thought it was a scam like "let's drop the the price to $2, and then up it to $7. Then back down again. Let them think there is a real up and down to the market. We'll keep it at $7 most of the time, and drop it to $2 for a week or two.

(and yes, I know the cost of gas has a large tax component)

So - what the eff is going on?

[Exodus_2pt0]

I just read up on this the other day. From what I gather we are just now seeing the benefits from drilling here at home. The US has increased its oil production by 50% in the past few years.

Very rough guestimate. I am not well versed here, and only spent about 10 minutes reading up on it.

[george graves]

I read that theory as well.

In short, OPEC is trying to scare investors out of (errr....)investing in oil production. Drop the price, and a billion dollar pipe line/new oil rig/etc looks like a bad idea money wise.

Is that a hail marry for them? Can cheaper oil and electric cars really send the middle east back 1000 years?

[Ether-D]

I think it's about crippling Russia financially. I know that's a little tin-foily, but maybe?

[EyExR]

The U.S. is now the #1 producer of both oil and natural gas. All to the detriment of our environment. Such a shame.

[long tall eta]

if you think those countries hate the U.S. now, wait till you see how much they hate us when we no longer are oil dependent on them.

[Dozyproductions]

if you think those countries hate the U.S. now, wait till you see how much they hate us when we no longer are oil dependent on them.

?? We'll have no reason to be assholes anymore anywhere they produce oil. They'll love it.

I've heard the blow back from our growing oil independence has opec wanting for the U.S. ventures to starve in profitability, hence the flood in oil and the lowering in prices. Europe depends on Russian oil no matter how much it says otherwise. It has and it will continue to do so and it will not be the other way around for a while.

[mrsleeve]

saudis have been the #1 producer in the world for a long long time. US in 2015 was slated to out pace them in production again thanks to our shale oil and fracking tech boom in the last 10 years, the gooey sands in alberta have been digging into the saudis oil pocketbook as well.

Now all this said both Gooey sands and Shale oil both require a bit higher pricing to be profitable vs. the conventional wells in most of the OPEC nations. OPEC and namely the saudis right now are just playing a power game by running up the production and leaving it there for a while. Just like in the late 90's when they did the same thing as 87 octane in lower MI was 75 cents a gallon. The thing about this game of trying to hurt/temper the US economy, they are going to bang the shit out of the russinas that need about 90 bucks a barrel to break even in most of those Siberian fields, where they have been getting a lot of their cash to fund vlads latest military adventures. Cutting them off here with unprofitable oil for awhile might temper them more than hurting the US in the long run. Yes we are the worlds largest producer of Natural gas but we cant seem to export very much of it...... thanks Govt, and environmentalists

There is much more too this, bit this is the very simple lay-mans gist of it all.... The conventional wells that are the back bone of OPEC's oil fields are what peek oil theory was written around, and will come to fruition in those fields sooner than likely latter. Maybe the saudis are just trying to make the best of those dyeing fields before some new power sources comes along and wipes out the petrochemical business might in energy production.

[Dozyproductions]

Now is fracking worth flaming faucets?

[ST1G]

I assume OPEC is trying to monkey with the market.

Why? And what is the end game?

At first I thought it was a scam like "let's drop the the price to $2, and then up it to $7. Then back down again. Let them think there is a real up and down to the market. We'll keep it at $7 most of the time, and drop it to $2 for a week or two.

It's not an 'end game' oil price is determined by supply and demand. And manipulated by the major supplier OPEC. But it's not really some big secret. The reason they can play with the price so much is there are no complementary goods, and demand is inelastic ins the short run. Petrol would need to become pretty expensive before you decide to walk, or ride the bus.

Petrol is lower due to a few factors, and they are dependent on each other. One, In the most simple terms it's lower oil demand globally (China, Germany, US, etc.) in combination with the US producing more oil than it has in three or four decades. This decrease in demand, and increase in supply has pushed oil prices down.

To compound that effect OPEC has decided not to cut oil production. Thus, the global supply will stay higher than the global demand, and will likely stay that way until demand catches up with the lowered price, or oil production is cut and curtails supply.

As mrsleeve has mentioned, tarsand oil is too expensive to compete with conventional well oil. I don't think it's to target Russia. They are suffering enough with the sanctions we put on them, and their refusal to import other goods (beef from Idaho for example).

Hurting the economy is a tough one though. Cheaper petrol means more discretionary income and (theoretically) consumer spending on other sectors. Some sectors do well, some are hurt. Economists are split on whether it's a net gain or loss with lower prices.

Also, taxes are a huge part of petrol prices. The average petrol tax is only $.49 a gallon, and the $.18 of it that are federal haven't changed since 1993 when gas was $1 a gallon.

[mrsleeve]

^

Lower demand is part of the equation yes, but global demand has been slipping for the last 16 months or so. You also have to remember the Saudis RAISED their daily production by about a million barrels a day back in OCT/NOV and the recent vote to keep production at current levels includes that rise in production. This is a play to show the rest of us that they still have some say in how the world works... You have to remember as well with the saber rattling and military grandstanding of OL Vlad funded largely with the profits form the Siberian oil fields as of late thanks to 100+ a barrel oil. One cant help but wonder if this is a play to temper that to some degree by the west though the arabs. There is a little more thought to this but its gets into a fair bit more tinfoil.

Right conventional well production is what peak oil theory was developed and premised on. Its cheap oil for all intents and purposes, IIRC and working from memory, Gooey sands needs about 72 bucks a barrel to make it profitable enough, depending on where in the country shale oil in the US need about 67-80 bucks. We are a bit south of that right now (trending at 62 a barrel in azn markets ), its likey not going to slow production thats in place too much but its going to all but halt new development and bringing new facilities that are being put together right now on line. until pricing recovers to 80-90ish a barrel. Natural gas will likely not be affected much by this as demand will continue to rise for power generation and home heating

As to net gain or net loss, look at where nearly all the good jobs in that have been added since the down turn...... Yes the energy business largely in the shale plays around the country. Fun thought as well, if this glut in supply and increased production lasts much past Q2 next year will prolly get transcanada to wash their hands of the XL and walk away form the whole project and take it back up in a decade or so if ever. Much to the glee of cretin political powers and envirocommies

Taxes really this again. A very large portion of the whole sale price of motor fuels IS TAXES not just retail excise and sales taxes you get to pay at the pump for end user retail use. The govt (Fed, state, local) here in the US make more on OIL than Big Oil does.

http://taxfoundation.org/article/state-and-federal-treasuries-profit-more-gasoline-sales-us-oil-industry

Now is fracking worth flaming faucets?

We have had this talk....... Now your just trolling :)

[rwh11385]

To add to what sleeve said with pretty charts:

Source: http://www.financialsense.com/contri...-supply-crunch

A different cut-up of the cost curve:

Source: http://www.ogfj.com/articles/print/v...l-markets.html
Similar alternative: http://www.businessinsider.com/marke...ber-29-2014-12
Another: http://snbchf.com/global-macro/shale-oil-oil-sands/

In addition to supply-side changes mentioned above, I think there is an evolving demand-side in the US as well. We're buying more fuel efficient vehicles and thus reducing our demand for oil per mile driven.

http://www.bloomberg.com/news/2014-1...amid-glut.html

On average, automobiles sold in August could travel 25.8 miles on a gallon of fuel, up 28 percent since 2007, according to the University of Michigan’s Transportation Research Institute.

And then there’s this twist in the energy independence story -- lower crude prices could paradoxically weaken demand. The argument goes like this: Declining oil will give consumers more disposable income that they can use to purchase more efficient vehicles...

“Consumers are doing their best to get themselves out of buying petroleum products,” Verleger said. “The fall in oil prices is going to accelerate the fuel’s own demise.”

I guess we could buy more gas guzzlers when gasoline is temporarily cheaper. The record fuel economy purchased has declined a small bit recently...

http://www.umich.edu/~umtriswt/EDI_s...ghted-mpg.html


That would help to make sense of the gasoline vs. diesel price differential: http://www.jsonline.com/business/die...284669531.html

Oh well, I'm not sure if this source is any good or not, but has a theory for it George: http://www.nakedcapitalism.com/2014/...20-barrel.html
Although their short-term profits fall, it is still over their marginal cost unlike competition and in the long run hope to drive out competition to restore their power on the market.

Daily Kos is obviously biased, but has good infographics to check out: http://www.dailykos.com/story/2014/1...about-to-crash

As sleeve mentioned, many of the recent jobs gains have been in ND and other fracking places so may hurt that element of the recovery as well as make tarsands a moot point along with XL pipeline to transport it. All this growth was based on prices making the non-conventional practices economical and then Saudis can just kick the floor out from under it for the time being potentially. Those ill effects may be tempered a bit from people having more disposable income from cheaper gas, but would also hurt the purchase of alternative fuel vehicles and some investment in research I imagine. Additionally, the investments in shale companies may poison the junk bond well too and have risk of upsetting the market a bit.

[mrsleeve]

The other thought on this maybe that Opec and the sauids might be wanting to add a shit pile of long running volatility to the energy sector to get price up to that 150+ a barrel bench mark. By pumping the shit out of it now for a while to get other more expensive producers to slaken their production off and maybe even nearly halt it if this production level is kept for a couple of more quarters. Then SLASH their own out put and put a huge up surge on the pricing. By doing something like this often enough you can really put a pile of fear in what things are going to look like with in almost EVERY form of commerce .

[Rustyduktape]

Now, I'm no expert, but I'm thinking long term here. Obviously this'll bring up the argument of long term vs short term, and that'll bring up the argument that we wont be using as much oil in the long term anyway, but still. Tar sand oil needs to be heated up quite a bit, right? What do we use to heat it up? I wonder what the cost adds up to in the end. I'm sort of against being self sufficient, but not against have an adequate infrastructure just in case. Isn't trading between countries better for everyone? Just some thoughts I had for discussion. I can never really make good arguments/points in these threads, but maybe some intelligent conversation can come from my half thought out... thoughts. haha.

[ajhostetter]

Now is fracking worth flaming faucets?

If we get another Michael Moore "documentary" out of it...absolutely.

There's a lot going on, mainly a glut of supply. The Saudis learned back in the 70s-80s that if they cut production, it simply give their competition a serious incentive to innovate. With Bakken crude costing ~$35/bbl to extract, and the Saudi crude costing ~$6/bbl (source: Wall Street Journal), they can afford to ride this out and squeeze the competition.