The average cost of production is around $45/bbl = Rubbish
10M bpd of production is above $75 = please substantiate
So half of global production is not profitable below $45 = rubbish.
I posted production costs a couple of pages back from
January 2016. Only Brazil & UK were above US$45/bbl, but not by much
http://marketrealist.com/2016/01/cru...oil-producers/
A "Normal" price is arrived at when supply isn't artificially constrained, as it has been for the past 20 years. That is how I determined my baseline for "normal" price, than adjusted it upwards
Before you say things like "So half of global production is not profitable below xxx" ask the question - would half the world's oil producers continue pumping oil when they are loosing more money with every barrel they extract? The answer must be "No". Some hypothetical numbers
Cost for country X to produce = US$50/bbl
Revenue from sale = US$33/bbl
Volume = 1M bbl/day
Period = 1 month (30 days)
Loss = US$510M
Cost for country X to produce = US$50/bbl
Revenue from sale = US$33/bbl
Volume = 0
Period = 1 month (30 days)
Loss = US$0
Country X is better off by not extracting and selling oil,
so why would they - out of the goodness of their hearts? because they are stupid and can't do the maths? Or is it because their cost of production is lower than you think and they are in fact still making money?
Shale production costs are apparently falling quickly as the fracturing technique is improved
The ONLY rational reasons for continuing to extract oil when cost of extraction is above sale price that I can imagine are
- the oil is a by-product, the well is primarily a source of gas (like in NZ)
- the oil is being stored in anticipation of a future price rise, and not being sold (would need some very big tanks and a big stack of money to fund this.....)
- the well shutdown process is long and is currently underway