[jeffkrol]

Interesting.. and unverified.. facts;

for what it is worth...........

Common folks don’t know that operational cost for one barrel of oil at Rumaillah field is some 2 USD/barrel. Other fields have 6-17 USD per barrel and extreme Canadian oilsands is somewhere between 30-40 USD per barrel.
Banksters, hedge funds and others yet ride Brent oil for 115 USD/barrel.

Think US "oil" will make it cheaper???? Think again............

It was a random comment here btw:
http://www.e-catworld.com/2012/10/final-update-corrected-again-pordenone-hot-cat-report/

Some harder data...
http://ftalphaville.ft.com/2012/05/02/983171/marginal-oil-production-costs-a...rds-100barrel/

B]And if Saudi Arabia is already comfortable with oil priced at $100/barrel (or higher, judging from the state of the market), then presumably they’re not about to use their much cheaper production rates to save the big listed oil companies from the higher costs they face. Demand destruction might be another matter, but again, we digress…[/B]

ahh capitalist scams.. wonderful..

Also, this research obviously only covers non-Opec producers, and it mostly excludes Russia too. Given Saudi Arabia’s role as the “swing producer”, how are the ex-Opec, ex-Former Soviet Union marginal oil production costs so correlated to Brent prices?

Bernstein argues that it’s because they are, basically, more costly:

While OPEC plays a key role in influencing price through production quotas, in the long run we believe that it is the marginal cost of non-OPEC production which sets the oil price. As global demand has surged over the past decade the marginal cost of production and oil prices have increased, as the industry has venture to increasingly higher cost (smaller, deeper fields) and more marginal regions (deep water, high arctic) to produce the incremental barrel of oil.

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Last edited by jeffkrol; 10-13-2012 at 09:03 AM.

[Medium FormatPro]

From any oil (crude) in the Middle East... It takes just three round trips to completely pay for any oil tanker

[mikemike]

I just bought some organic whole milk at the market yesterday and it was $5.69/gallon. That works out to about $0.66/lb of milk while the cost for producing milk is closer to $0.15/lb. Why don't the farmers help us out and lower the price? Do they hate children that much.

[jeffkrol]

I just bought some organic whole milk at the market yesterday and it was $5.69/gallon. That works out to about $0.66/lb of milk while the cost for producing milk is closer to $0.15/lb. Why don't the farmers help us out and lower the price? Do they hate children that much.

Dow we REALLY have to compare #'s of gallons used of each???? Is that what it comes down too???

I consider my points valid.. yours are just fluff .66/.15 vs 110/2 or do you want to go that way.. (4.4x markup vs 55x markup) There is "profit" and there is "gouging profits"...... see not recognizing that puts "capitalism" in the amoral at best category.. Something NOT to build your society on.............

Soo why doesn't SA just sell at $40/bbl "direct" and put the real out of business.. seems to be the "invisible hand" way to go.........what are you defending here???

[mikemike]

$15-20/gallon is what I typically here about the cost of off shore production in the Gulf of Mexico. From my understanding, that cost includes the cost of leases but doesn't include the cost of royalties to the federal government which are 18.75% for OCS leases. So if you include the cost of royalties, there is only a 2.8X mark up on the gulf oil ($100/($17+18.75)). The saudi's use their absurd profit to extend generous social programs to their citizens, something someone of your political persuasion should appreciate and not fault them for.

Oil companies (at least american ones) are what economists call "price takers" not "price setters." OPEC tries to flip this script but not all that successfully. When the price for oil was only $12/barrel in 1998 oil companies were losing money producing oil here and many were shutting in production, there wasn't any outcry from liberals to bail them out. This is one of the reasons I think the Keystone XL pipeline's value is dubious from a business point of view, tar sands will become unprofitable very quickly if the price of oil drops to below $70 and the pipeline will represent an increased fixed cost for them making the impact of a downturn devastating.

[boriscleto]

I just bought some organic whole milk at the market yesterday and it was $5.69/gallon. That works out to about $0.66/lb of milk while the cost for producing milk is closer to $0.15/lb. Why don't the farmers help us out and lower the price? Do they hate children that much.

Because the farmer is probably getting $.16/lb. It's the dairy that makes the profit.

[jeffkrol]

Oil companies (at least american ones) are what economists call "price takers" not "price setters." OPEC tries to flip this script but not all that successfully. When the price for oil was only $12/barrel in 1998 oil companies were losing money producing oil here and many were shutting in production, there wasn't any outcry from liberals to bail them out. This is one of the reasons I think the Keystone XL pipeline's value is dubious from a business point of view, tar sands will become unprofitable very quickly if the price of oil drops to below $70 and the pipeline will represent an increased fixed cost for them making the impact of a downturn devastating.

???? When SA bbl oil is $2 how can you say the US is a "price taker" and not "setter" (in league w/ all others at >2$ bbl)???

Seems the price is "set" on the highest cost/bbl

anyways you answered your own question... US/Canadian oil will create higher prices...........so it CAN be profitable...price maker..

[mikemike]

???? When SA bbl oil is $2 how can you say the US is a "price taker" and not "setter" (in league w/ all others at >2$ bbl)???

Seems the price is "set" on the highest cost/bbl

anyways you answered your own question... US/Canadian oil will create higher prices...........so it CAN be profitable...price maker..

Being a price taker or price setter in this context is whether or not they have control over the price that they sell their product, oil companies do not have control over that, they only have control over whether or not they choose to produce product at a given price. If the price the market is willing to pay for oil is less than a producer's cost, they will generally start to shut-in production at their production facilities with the highest marginal costs to bring expenses down and remain profitable or to minimize losses. The costs associated with production include fixed costs (many of which like leases, exploration, building platforms, drilling wells, maintenance, etc.) and variable costs (like payroll, supplies, services, transportation of product to market, and energy costs). So the cost of producing here might be $17/barrel as we price in the costs of leases paid to government and private landowners (which Saudi Aramco doesn't have that cost) and costs to comply with regulations (which Saudi Aramco have fewer compliance needs) allowing them to use cheaper technology. Cost structures are simply different here and there but I don't think the variable costs have such a big disparity making it viable if not obligatory to continue production from a facility which has already incurred high sunk costs in a down market in order to stem losses from idling production. You also have a whipsaw effect as oil leases get very expensive when the price of oil is high and it takes 5-10 years to start production from a lease and we have had 7-8 years of sustained high prices so now you are starting to see production come online from historically high leases.

Regardless, the price of gasoline is cheap here compared to Europe and is dirt cheap compared to the environmental costs associated with extracting and burning hydrocarbons. I hope the price of gasoline double promptly so people will think twice about driving so much in such inefficient vehicles.

[jeffkrol]

Regardless, the price of gasoline is cheap here compared to Europe and is dirt cheap compared to the environmental costs associated with extracting and burning hydrocarbons. I hope the price of gasoline double promptly so people will think twice about driving so much in such inefficient vehicles.

Actually it depends on the "market" doesn't it.. or the ability to pay higher prices.. W/ Healthcare covered in EU they can afford to pay more and yet have more discretionary income. Also mass transit plays into this..
You cannot compare US to EU gas prices without considering the ability.. or effects of paying said price..

your statement also goes back to gouging ..............

I have no problems w/ discouraging gas use BUT that burden is on the gov. in my way of thinking.. not a "stick" (which offers no ability to be "fair") on the general population..

Back to social engineering again.......

you do posses the wonderful "compartimentalization" trend of a conservative.. Everything occurs in your vacuum .............

[mikemike]

The government has tried to do non-price related social engineering for decades with dismal results such as the hummers and land rovers bulking up over 6000 lbs to receive a $25,000 tax break. Meanwhile, the solution is pretty simple, tax the daylights out of gasoline and you will increase government revenue and decrease pollution by providing a market incentive for efficiency without spending a cent on regulations or CAFE rules. Or we can wait for the market to increase the price and let the profits go to the oil companies, the canadians, and OPEC. Whatever, the inevitable will be here soon enough.

[jeffkrol]

The government has tried to do non-price related social engineering for decades with dismal results such as the hummers and land rovers bulking up over 6000 lbs to receive a $25,000 tax break. Meanwhile, the solution is pretty simple, tax the daylights out of gasoline and you will increase government revenue and decrease pollution by providing a market incentive for efficiency without spending a cent on regulations or CAFE rules. Or we can wait for the market to increase the price and let the profits go to the oil companies, the canadians, and OPEC. Whatever, the inevitable will be here soon enough.

Maybe it would work in a urban environment but certainly not in the vast "spaces" of the US.............. In my are it is not unusual for "poor to middle class" commuting 30-40 miles to work.. And their income wouldn't support expensive "green mobiles"....nor would small p!ss cutters make it through a good Midwestern blizzard.... LOL

In urban areas much of the gas guzzlers are owned by the least affluent because they can AFFORD them... increasing gas prices hurts the poor more than anyone and considering that is err.. 43% well you get my drift...


Yes there are ways to make it all work.. and huge costs to "someone" to do it..........

Oh and BTW did you forget the gov. doesn't really need the money.. which you refuse to believe..

[mikemike]

Maybe it would work in a urban environment but certainly not in the vast "spaces" of the US.............. In my are it is not unusual for "poor to middle class" commuting 30-40 miles to work.. And their income wouldn't support expensive "green mobiles"....nor would small p!ss cutters make it through a good Midwestern blizzard.... LOL

That isn't unusual here either, 1/5 of the metro area population lives on the other side of a 26 mile bridge, but that is environmentally untenable wherever it is happening and regardless of the socioeconomic class doing it. The main reason people move so far out is because land is cheap allowing them to buy oversized houses on oversized lots which necessitate driving just to go visit a friend in your own neighborhood. The whole premise of the exurbs or even sprawling cities like Houston, LA, or Detroit is unsustainable and will not end well. Even the US Government can't buy a cleaner environment just as you can't buy a fit physique and healthy lifestyle, you have to work at it every day even if it isn't always fun.

[Jasvox]

Unless the government completely owns the oil extraction and refinement process, oil is market value regardless of how much we consume that we produce. It is not unlike gold and the market price. Just because you mine it doesn't mean its any cheaper. It is what the market price brings. Here in Greece, we pay roughly $10 a gallon (1.90 euros a liter) because it is paid for at market price and then taxed ridiculously, making it rank among the most expensive place to buy gasoline in the world...move to Venezuela where it is state owned and operated and you pay 12 cents a gallon. (But who really wants to live there at the moment?)

Jason

[Jasvox]

W/ Healthcare covered in EU they can afford to pay more and yet have more discretionary income.

That isn't necessarily the case at all. Wages across the EU are a fraction of the wages in the USA, Canada and Australia. Yes, medical is provided as a state run service, but the taxes on income here are double or more than that in the USA. Most people living in the EU have far less discretionary income than in America.

Jason

[GeneV]

Because the farmer is probably getting $.16/lb. It's the dairy that makes the profit.

That is closest to the correct answer. It may even be less, because the farmers have little influence on price. The speculators do.

Why aren't milk prices also dropping in the supermarket?
The prices farmers receive for their raw milk are unrelated to retail milk prices or a farmer’s cost of production. Instead, the price of milk is dictated by the price of block cheddar cheese on the Chicago Mercantile Exchange (CME). The CME has a reputation for price manipulation that leaves farmers with less at the farm gate. Between 1998 and 2007, dairy farmers' share of the price spent on milk dropped 25 percent, while the retail price increased by 40 percent. In December 2008, the Dairy Farmers of America, one of the few big players influencing prices on the CME, paid a $12 million settlement with the Commodity Futures Trading Commission in response to charges of price manipulation. In short, too few players control the CME, resulting in artificially low prices for farmers and windfall profits for milk processors.

Dairy: Family Farmers in Crisis - Farm Aid