Break-Even

Blog Post
The break-even price of a barrel of sweet crude oil is about $80. (high sulphur oil is less) That means if the price drops below that number, you’re losing money to produce it. The price yesterday fell to about $35 per barrel with the Russians and the Saudis playing chicken. Saudi production capacity (not oil reserves) is massive.
Supply and demand sets the price and energy stocks along with the viability of drilling and exploration all pivots on profitability. A sustained price of $35 per barrel means that US companies will eventually be forced to lay off people because nobody can, or will produce oil at that price point. 
Saudi Arabia has cash reserves of about $500 billion. (oil is bought and sold in dollars).  Russia has smaller cash reserves but it has huge gold reserves and gold is fungible.
Airlines, and other massive consumers of petroleum are locking in futures contracts at a much lower rate, which might buffer them against the economic impact of coronavirus concerns. So it’s not all bad news for everyone, and the price will come down at the pumps.

10 thoughts on “Break-Even

  1. Generally, every other time I've seen gas prices come down, it was because of an economic slowdown leaving a glut.
    Turns out there's a "sweet spot" for gas prices I'm comfortable with.

  2. In the North Sea they claim the break-even is reduced from $100 to $27. Hopefully they make some profit. But the economy do get some shakin around these days.

  3. Water finds its own level as do oil prices. Nobody can operate at a massive loss for long and things will get back to normal soon enough.

    As to playing the market, that's another issue.

  4. Shale is more expensive to exploit, but the oil isn't going anywhere. One day the Saudis will exhaust their oil and will return to live in tents, defending their meteorite to the last.

  5. I've heard the break-even point for oil was around $50/barrel for shale oil and $35/barrel for sweet crude.

    These break-even prices are all over the place. $80 doesn't sound right to me, since oil hasn't been up to that point in a few years now, and Chevron and Dutch Royal Shell have been posting profits for all of the years since we last saw $80 a barrel (2012?). At $30, nobody is making money. Well, maybe the Norwegians, but that's because they are brilliant and good looking.

  6. If they're breaking even at $35, it should nudge to $40 and just stay there, making a stable world, and keep everyone happy, except the Norwegians, who will want to see the price soar.

  7. I live in Weld County, CO, the 20th largest oil/gas producer in the USA. Local merchants are already feeling a drop in business, principally from exploration companies. The production companies are still going strong and the natural gas side shouldn't be harmed too much.

    I anticipate an upturn in delinquent mortgages soon, which will make more work for me. Yeah, I'm mercenary, bite me.

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