Originally Posted by mikeb
So what does oil need to be priced at to make money? Can we pump oil here and make money while the saudis sit on their oil and eat sand?
It really isn't a price point but a rate of return.
I'm sure the suppliers can make a lot of money with $80 a barrel oil.
But, up till now at least, as an oil producer, they are looking at it and saying... the best investment choice at the moment is my "black gold." Leave it in the ground and next year it will be worth much more than my rate of return at the bank. We'll sell it next year and make even more.
Couple that with low interest rates which drive the value of the dollar down it costs most $$$ to buy the oil.
Now, the producers are in a situation where they must decide was $140 the short term peak for now. Is it a better investment decision to ramp up production now and sell it fast before oil drops farther? WTI Cushing Spot was down $4.75 a bbl today. In terms of US demand that is worth almost $100MM.
You also have the Fed having to fight inflation along with high than wanted unemployment (two mutually exclusive items you can't fight both at the same time.) So people are starting to believe the Fed is done with easing and will start increasing rates. The value of the dollar goes up and can purchase more commodities (like oil) for each dollar.
Although I certainly respect people like T Boone Pickens, I think we'll see $100-110/bbl oil before we see $150/bbl oil unless something critical happens to the world in the next couple of months.