Why is Chevron produce oil costing $70/barrel?

Discussion in 'Economics' started by misterno, Jun 6, 2011.

  1. Here is what it says.


    "Chevron says the project will be profitable as long as oil prices stay above $60 or $70 per barrel, well below Monday’s level of $97.70."


    We got so many reserves in Arabian Peninsula costing less than $10/barrel to produce oil and yet Chevron is pursuing this project. There are many reserves in the world that will cost much less than $70/barrel all around the world and yet Chevron's cost is $70????

    Something does not make sense here.

    Read on.

  2. Because the demand is higher than the volume of cheap stuff that can be produced. And every barrel of cheap oil that gets depleted off the market or is used internally instead of being exported is replaced by a barrel of very expensive oil.

    There is no mystery in any of this.
  3. Pekelo


    It actually helps if you read the article what you linked to:

    "Heavy oil, which can be as thick as molasses, is harder to get out of the ground than light oil and costs more to refine into gasoline. "
  4. It does not make sense to produce oil for $70 when many wells in Arabian peninsula costing less than $10

    Something is wrong with this picture
  5. Pekelo


    Sure it does if:

    1. You know that the $10 oil is running out soon.
    2. You still can sell the $70 oil with a nice profit.
    3. You know that the future and reality is the heavier, more costly oil.

    At $100 that is still a nice 40+% profit margin, nothing to sneeze at...

    But yes, there is something wrong with the picture, and that is the Saudi's unwillingness to tell the truth to the world. Well, going for the $70 oil explains it...
  6. It makes perfect sense if you don't have access to the $10 oil, or if there isn't enough of it, or if the producer of said cheap oil is maximizing their own economic potential by not pumping balls-out.

    The bottom line is if the supply of $10 oil were sufficient, oil would be $10. It's not, therefore, it's not.