$10 Oil Will Never Happen

Recently I read an opinion article posted on Bloomberg View where a guy named Gary Shilling predicted that the oil price could fall as low as $10. The title of the article read “Get Ready for $10 Oil”.

Of course this is a sensationalist title, and the author probably doesn’t really believe that oil will fall that low, but it ranked #1 on Google News results. The link is here.

Before people go buy new Hummers, let it be known that the lowest production cost in the world is $10-$20 per barrel in Saudi Arabia – and Saudi Arabia only produces around 13% of the world’s crude. The US imports most of it’s oil from Canada, and produces shale oil at a cost between $25 and $95 per barrel. It would be more economical to simply stop pumping oil rather than producing it for free – and that’s what’s happening. Around 100 shale oil rigs were closed in the US in late January, and more are probably being closed as we speak. Countries with small bankrolls will not be able to afford running their oil industry with oil at $10, and will most likely end up in economic chaos. Russian oil production costs are between $10 to $16 but the transportation costs are high to get the oil to suitable refineries and around the world. World demand for oil is not decreasing, but increasing at a slower pace (until the effects of people all bathing in oil and taking joyrides in 18 wheelers starts to kick in).

As of today Crude WTI oil trades at $52.78 and Brent trades at $57.39. Brent is the price used for global oil producers and WTI stands for Western Texas Intermediate. This is up from the low of around $45 in late January.

With all the volatility in oil prices you can bet people are making money off of the price changes. You can too – just read my article “How To Capitalize on Low Oil Prices“.