Peak Oil is You

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Page added on December 29, 2008

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Oil Futures Market: Unwinding the Bubble

Almost every day since July, I have been reading (correction, scrolling through and mostly ignoring) articles declaring an oil price bottom and setting “natural” price targets for oil. In August, those targets were in range between $150 and $200 (last one by Goldman Sachs, I still want to know if their traders listened to their analysts and if so, how much money they lost in result). Currently, the range moved to something like $80 to $100. What a bunch of crap! And I completely refuse to discuss bunk “Peak Oil” theory here.

First of all, I don’t know where the oil price is going in the short term. Second, if the price of oil was defined by the supply and demand of the real commodity, the price should stabilize somewhere between $50 and $60, which is the current marginal cost of Canadian oil sands companies and deep water extraction.

I can’t seriously accept claims that Middle East costs are reaching $120. Yeah, sure, if you think that Iran’s development of nuclear arms, Saudi money going to support the most reactionary, most antisemitic mosques in the world, Venezuela’s stupid government spending on arms and “social” projects are parts of cost of oil, I have a dozen bridges in Minnesota for 99 years rent. If you strip all the crap, the cost of Middle East oil still doesn’t exceed $25.

The situation in Russia is a little bit worse, but still, the cost of most producers doesn’t exceed $40, translated into price of light sweet crude. Deep water oil and oil sands production is the most expensive to extract and thus gives us a good estimate of marginal cost.

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