North America to Drown in Oil as Mexico Ends Monopoly

And don't forget, everyone is in on the oil boom too! In Texas, these guys are making big bucks and have great benefits. Sure it's hard dirty work but they aren't going without.

profdant139 wrote:
Doesn't it increase the supply? As supply goes up and demand stays constant, wouldn't the price fall?

I'll start with this first.

The price of oil we see in the media is for a certain type - the 'best' type of oil which is easiest, and cheapest to refine. Some types of oil are cheaper, but more expensive to refine. So cheaper oil at Cushing, OK doesn't mean the end product is cheaper.

Demand does not stay constant. The US demand increases constantly, though not as much as in the past. However several countries are increasing their demand at higher rates than the US - China being the biggest.

Remember the controversy over the Keystone XL Pipeline Phase 4?

There was a competitive offer from China to fully fund a pipeline from the oil sands in Canada to the Pacific Coast - to ship all the oil which has been coming from that region of Canada into the US since 2010. To ship all the oil currently coming into the US to China.

They were willing to pay more than that oil is currently selling for per barrel. But the environmentalists were really up in arms about running a pipeline across the Canadian Rockies and setting up a pipeline terminal in the Inside Passage.

profdant139 wrote:
I am going to display my ignorance, so beware -- but how could fracking drive UP the price?

Drilling for oil is expensive. And even with today's technology - there are still dry holes.

An oil company has to invest money in the drilling operation.

Back in the early oil boom times - wells were 500 feet to 1,000 feet deep. A lot of oil early in the 20th Century was available for less than $10,000 per well.

Today the shale and other formations where fracking occurs are 2 to 3 miles below ground. Imaging the additional expense of drilling 12,000 feet vs 500 feet. Add inflation and the stronger well materials required.

Also, fracking usually involves horizontal drilling.

Then after getting to the formation holding the oil - usually a few hundred feet tall but covering thousands of acres horizontally - they have to have the horizontal wells to give them access to areas of the rock.

The oil is trapped in rock - it is not a free pool of oil like in the 'gusher' areas we see in movies.

They have to pump water or mud down under extremely high PSI to break the rock and allow the oil to escape.

Then the oil has to be pumped to the surface.

It can cost between $150,000 and $200,000 per day to run the rig drilling the well. It can take 10-30 days to drill down to 2 miles.

Fracking is also an expensive labor intensive process - which can run $100,000 per day for two or three weeks.

Offshore drilling runs $450-600,000 per day and takes longer.

What all that means is that it can easily cost $10 to $30 million before the first drop of oil is brought to the surface. There are continuing costs for royalties to the owner of the mineral rights, for costs to bring the oil to the surface, for costs to transport the oil to a distribution points.

A well won't product 10 million barrels. If it produces a million - it is a great success - but by the time the well reaches the end of its life - the oil has averaged costing $30 or 40 dollars per barrel to get the oil out of the ground and to the selling point for crude oil. Which means the company needs to sell the oil for $60 or $75 per barrel to make a profit, and have money to invest in further exploration.

Number 1 - fracking costs money - they have to force materials into the well to open up the fissures - this can be an ongoing process - and they have to dispose of the used materials.

Number 2 - it is the depth of these new wells in the new finds and the new technological processes they have to use to get the oil out. They could not afford to do this if the prices stayed down - not cost effective. The wells are very deep - two miles or more down. Once they get down they have to turn the drilling equipment so it goes sideways and horizontally out from the vertical shaft. Then they must force heat down into these horizontal wells to soften/liquefy the oil to make it liquid enough to pump it out. Then of course they must pump if up from great depths. All of this is very costly. There have been many estimates of how much oil is there and how much is recoverable. Though Bakken has been known about for many years it has only been recently that new technology has made it possible to get it out - and higher oil prices have made it cost effective. Below is the Wiki website where research into all of this can be started - there is a great deal more to it than old Jed Clampet getting crude bubbling out of the ground. The deeper the oil is the more costly it is to recover.

http://en.wikipedia.org/wiki/Bakken_formation

I am going to display my ignorance, so beware -- but how could fracking drive UP the price? Doesn't it increase the supply? As supply goes up and demand stays constant, wouldn't the price fall? (I am not saying fracking is a good thing -- just that I am confused.)

As Richie C says it is partly fracking that is driving up prices but any number of other factors. The shale oil is deep in the ground - about 2 miles down - and is embedded in rock which requires heat to get it out of the rock. They have long known the oil was there but until recently did not have the technology to get it out. Recent developments and higher prices make it cost effective to go for the deeper finds. So they drill down about 2 miles and then somehow turn the drill horizontal to go out in other directions for some distance and then frack and heat and do whatever to get the oil out of the rock - then pump it up. This is very costly and would not be done if the price per barrel didn't justify the cost. Same applies to the deep water drilling offshore which is also a very expensive process. Since the finds in ND the technology has gotten better and is now being used in other areas with booms in TX and OK - but still the process is expensive - and it is time consuming as they must sort of melt the oil out of the rock to retrieve it. All in all very costly and has a lot to do with what the lowest price per barrel can be. Yes, there are probably other factors but they would not be drilling these deep wells if they were not assured of return on investment. There are dreams and there is reality - we are not going to see cheap oil unless there is some new miracle find - which is seriously doubtful as every inch of the earth has already been scoured in search of more oil. Using less could bring down prices and it seems the only way to use less is to buy more economical vehicles - which we RVers are not doing very well. We are in Mexico where the price per gallon at the pump is almost as high as we pay in the US - up from half that price about 5 years ago - so even the Mexican oil prices are going up.

Fracking is producing a much greater quantity of oil at a much greater cost.
Demand is on the rise.
It's unlikely that we'll ever see $60 oil again.
Lets just hope that oil prosperity in Mexico will help that country and not simply line the pockets of politicians.

If we had Domestic companies producing and refining for American markets the price of oil would be below 60.00 a barrel. Remember SOHIO?
Exxon etc went to Court to force SOHIO to sell it's crude production to them International Cartel and buy it's gas and diesel etc back at prices set by the Cartel or if you will the Cabal. They shift our crude production and refined products around and store and with hold product to boost prices and keep them up.
How our Courts went along with this is insane as is the Government policies and Congress and Senate.
Economical energy supplies were the foundation of cheap food production,fertilizer for agriculture, plastics, metal and all other production. Our economic security has been destroyed and energy managed, for the pockets, of a few by Traders and Energy Companies, Hedge Funds etc acting as Traders. Energy is a basic engine of the economy and never should have been put on the International Exchange. Traders add as much as a dollar to what the price of a gallon, of fuel should be. Their actions have a lot to do with the greatly devalued dollar. remember all the jokes about Pesos and Lire and th bushel basket now look ,at the dollar.

The basic cost of me packing a lunch and going to work, is, say $988.00 plus expenses. Prove that it isn't. Nice to be able to make your own rules.

tsetsaf wrote:
You do note in the article the mention that refineries are at capacity? Oil prices will not and can not drop below about $75 per barrel. Below that number and all of the US based oil production from sands and shale will no longer be profitable. We will not see fuel prices below $3 per gallon in any reasonable time frame. As for us we budget for $5 per gallon and are happy with anything less

On Bloomberg this morning it was stated that Mexican Crude Oil benchmark price has been sat at $85 per barrel. Canadian Tar Sands production cost is $65 per barrel and with transportation cost profit is $5.50 per barrel at the Mexican benchmark.

rocmoc n AZ/Mexico

MEXICOWANDERER wrote:
You folks that believe crude oil abundance will cause a price slash are dreaming.

Can you imagine what a 50% reduction in 8.75% sales tax on gasoline would do to California's fiscal budget? HAR HAR HAR

A "problem" in a light oil processing unit can serve to reduce gasoline and diesel output by 50%. If you don't believe oil companies do not hold "meetings" to discuss supply and demand amongst themselves then I feel sorry for you.

Refiners REGULARLY hold meetings under the guise of "Coordinating Maintenance Turnaround Shutdowns".

Excess oil? Japan and China wait with yawning tanks...

If you have first hand information of price fixing in any U.S. industry you should report it to the Department of Justice. Oh, wait a minute, better check the corruption list for DOJ officials first.