Lifting Costs and the Manipulation of Oil.

 

http://www.eia.doe.gov/neic/infosheets/crudeproduction.html “Reservoir characteristics (such as pressure) and physical characteristics of the crude oil are important factors that affect the cost of producing oil. Because these characteristics vary substantially among different geographic locations, the cost of producing oil also varies substantially. In 2006, average production costs (or “lifting” costs, the cost to bring a barrel of oil to the surface) ranged from about $4 per barrel (excluding taxes) in Africa to about $8.30 per barrel in Canada; the average for the U.S. was $6.83/barrel (an increase of 23% over the $5.56/barrel cost in 2005). Besides the direct costs associated with removing the oil from the ground, substantial costs are incurred to explore for and develop oil fields (called “finding” costs), and these also vary substantially by region. Averaged over 2004, 2005 and 2006, finding costs ranged from about $5.26/barrel in the Middle East1 to $63.71/barrel for U.S. offshore. While technological advances in finding and producing oil have made it possible to bring oil to the surface from more and more remote reservoirs at ever increasing depths, such as in the deepwater Gulf of Mexico, the total finding and lifting costs have increased sharply in recent years. World Crude Oil Production Total world production of crude oil (including lease condensate, but excluding natural gas plant liquids3) in 2006 was 73.54 MMbbl/d (preliminary). The top five oil producing countries, which together accounted for about 43% of total world production, were: Russia (9.25 MMbbl/d), Saudi Arabia (9.15 MMbbl/d), the United States (5.1 MMbbl/d), Iran (4.03 MMbbl/d) and China (3.69 MMbbl/d). The Organization of Petroleum Exporting Countries (OPEC), which includes Saudi Arabia, produced 32.1 MMbbl/d or about 44% of the world total.”
	http://www.opinionjournal.com/extra/?id=110006228 “The market price of oil is indeed hovering up around $50 a barrel on the spot market. But getting oil to the surface currently costs under $5 a barrel in Saudi Arabia, with the global average cost certainly under $15. And with technology already well in hand, the cost of sucking oil out of the planet we occupy simply will not rise above roughly $30 a barrel for the next 100 years at least. In sum, it costs under $5 a barrel to pump oil out from under the sand in Iraq, and about $15 to melt it out of the sand in Alberta.”    The article goes on to explain there is a 100 year supply of oil sitting in Venezuela and Canada, and their lifting costs are around $15/bbl. There is no reason for oil to touch $147 for the next 100 years. The CRB index is the basket index for commodities; which is 33% crude oil. Conventional wisdom tells us; when equity markets and home prices (high order consumer goods) are falling; commodities (low order consumer goods) should rally. Oil rallied as the subprime catastrophe began, and it continued to run as the housing crisis became a financial meltdown. My goal in presenting these figures is to highlight when to buy oil again. My standard concept is to start buying oil when it touches $30/bbl because there is equal risk to reward in holding oil at $30/bbl if your profit target is $50-60/bbl. The investment hold time might be 1 year to earn 80-100% return. I feel oil will bottom before the global equity markets so getting in oil first and then diversifying into some equity markets 6 months to a year later would be more profitable. Currently we are in a deflationary cycle as banks collapse and money evaporates. When banks stop collapsing we’ll enter a fast inflation cycle where prices of everything will rise. I’m not jumping on the gold band wagon. Gold will rise just like oil or corn. To say gold should be at $3000/oz is saying farmers should be driving Maseratis. Don’t listen to people preaching high gold prices.