Under $2 Gas: Enjoy It While You Can!

[mheslep]

This could make for an interesting discussion on what happens to the middle east and north africa. If it's bad now, what happens when they don't have any money.

Off the top of my head, I suspect running out of spare cash would make it hard to operate rogue WMD programs, arm terror armies, or invade the neighbors.

 

[Danger]

Off the top of my head, I suspect running out of spare cash would make it hard to operate rogue WMD programs, arm terror armies, or invade the neighbors.

Of course; that's why the US is so money-hungry.

 

[nikkkom]

Of course; that's why the US is so money-hungry.

What this even means?

 

[Jobrag]

A good time for you Americans to introduce a Federal petrol (gas) tax, either cut the deficit or go all out for a manned Mars mission.

 

[leroyjenkens]

I've never bought premium. I don't know what premium is and I don't really care. It's more expensive, so I get the regular. And most people get regular. I know this because the button for regular is always dirty and scratched up and worn while the premium button is always spotless.

I don't really mind when the price of gas is high, because I drive a fuel efficient car and only have to pay like $20 a week for gas, and I drive a lot. About 15k miles a year.
But when the price is high, I get satisfaction from all these rednecks and meatheads with huge trucks, or worst of all, hummers, who have to put their whole paycheck in the gas tank.

 

[nsaspook]

A good time for you Americans to introduce a Federal petrol (gas) tax

We already have one and state taxes on top of that. WIKI

The United States federal excise tax on gasoline is 18.4 cents per gallon and 24.4 cents per gallon for diesel fuel.[1][2] On average, as of April 2014, state and local taxes add 31.5 cents to gasoline and 31.0 cents to diesel, for a total US average fuel tax of 49.9 cents per gallon for gas and 55.4 cents per gallon for diesel.[3]

 

[edward]

This is definitely a waiting game with OPEC. We have thousands of new wells producing enough to significantly lower the price of oil. On the other hand the shale oil business is top heavy with debt. The shale oil wells pump 60 to 70 percent of their available oil in one year. Will those investors stick around while we have to keep up the pace of drilling new wells and building new infrastructure?

There will, of course, be losers (see article). Oil-producing countries whose budgets depend on high prices are in particular trouble. The rouble tumbled this week as Russia’s prospects darkened further. Nigeria has been forced to raise interest rates and devalue the naira. Venezuela looks ever closer to defaulting on its debt. The spectre of defaults and the speed and scale of the price plunge have unnerved financial markets. But the overall economic effect of cheaper oil is clearly positive.

Just how positive will depend on how long the price stays low. That is the subject of a continuing tussle between OPEC and the shale-drillers. Several members of the cartel want it to cut its output, in the hope of pushing the price back up again. But Saudi Arabia, in particular, seems mindful of the experience of the 1970s, when a big leap in the price prompted huge investments in new fields, leading to a decade-long glut. Instead, the Saudis seem to be pushing a different tactic: let the price fall and put high-cost producers out of business. That should soon crimp supply, causing prices to rise.

http://www.economist.com/news/leade...d-some-businesses-will-go-bust-market-will-be

But much of the burden of adjustment will fall on America’s shale industry. It has been a big swing factor in supply, with output rising from 0.5% of the global total in 2008 to 3.7% today. That has required hefty spending: shale accounted for at least 20% of global investment in oil production last year. Saudi Arabia, the leading member of OPEC, has made clear it will tolerate lower prices in order to do to shale firms’ finances what fracking does to rocks.

Two generalisations can still be made. First, in the very near term, the industry’s economics are good at almost any price. Wells that are producing oil or gas are extraordinarily profitable, because most of the costs are sunk. Taking a sample of eight big independent firms, average operating costs in 2013 were $10-20 per barrel of oil (or equivalent unit of gas) produced—so no shale firm will curtail current production. But the output of shale wells declines rapidly, by 60-70% in their first year, so within a couple of years this oil will stop flowing.

If debt markets dry up and profits fall owing to cheaper oil, the funding gap could be up to $70 billion a year. Were firms to plug this by cutting their investment budgets, investment would drop by 50%. In 2013 more than a quarter of all shale investment was done by firms with dodgy balance sheets (defined as debt of more than three times gross operating profits). Quite a few may go bust. Bonds in some smaller firms trade at less than 70 cents on the dollar.

All this suggests looming investment cuts that within a year will slow growth in American shale production to a crawl and perhaps even lead to slight declines. A few firms have trimmed their budgets already. More are expected to announce cuts in January. “Frontier” projects—on the fringes of existing basins or in places where little commercial production has taken place—are vulnerable, including Oklahoma. Most firms will hunker down in the Bakken, the Eagle Ford and the Permian Basin, where they have scale and infrastructure. Even in the Bakken, applications for drilling permits fell by almost 40% in November.

http://www.economist.com/news/finan...ling-oil-prices-curb-americas-shale-boom-bind

When it comes to losing money or putting the economy in jeopardy big money always seems to do the latter. We need to get through this and stay on top of the game with OPEC.

 

[JonDE]

I don't understand how OPEC expects to win. Even if they keep prices really low for an extended period of time, forcing us to stop drilling new wells, as soon as price goes back up, we will begin drilling again. Their only option seems to be to permanently keep prices low, which is not to their benefit.

 

[mheslep]

OPEC is not acting monolithically at his time. Rather, the Saudis are acting to stop loss of market share even if at a lower price. If along the way they can force some of the more expensive producers to go bust, then replacements will be very slow to re-enter production and the Saudis should be able to allow the price back up a little.

 

[nsaspook]

http://www.nytimes.com/2014/12/01/world/russian-money-suspected-behind-fracking-protests.html?_r=0

This belief that Russia is fueling the protests, shared by officials in Lithuania, where Chevron also ran into a wave of unusually fervent protests and then decided to pull out, has not yet been backed up by any clear proof. And Gazprom has denied accusations that it has bankrolled anti-fracking protests. But circumstantial evidence, plus large dollops of Cold War-style suspicion, have added to mounting alarm over covert Russian meddling to block threats to its energy stranglehold on Europe.

 

[mheslep]

Apparently Russia has been doing agitprop on EU domestic production for some time.

The head of one of the world’s leading groups of democratic nations has accused Russia of undermining projects using hydraulic fracturing technology in Europe.

Anders Fogh Rasmussen, secretary-general of the North Atlantic Treaty Organisation (Nato), and former premier of Denmark, told the Chatham House thinktank in London on Thursday that Vladimir Putin’s government was behind attempts to discredit fracking, according to reports.

Rasmussen said: “I have met allies who can report that Russia, as part of their sophisticated information and disinformation operations, engaged actively with so-called non-governmental organisations - environmental organisations working against shale gas - to maintain European dependence on imported Russian gas.”

http://www.theguardian.com/environm...ing-with-environmentalists-to-oppose-fracking

 

[nikkkom]

I don't understand how OPEC expects to win. Even if they keep prices really low for an extended period of time, forcing us to stop drilling new wells, as soon as price goes back up, we will begin drilling again. Their only option seems to be to permanently keep prices low, which is not to their benefit.

You are forgetting that OPEC is making money even at $50 per barrel. Just not as much as they used to.

 

[mheslep]

Apparently the US shale drillers can still make money down to the mid-$60s in the major shale-oil fields. link

The major U.S. shale fields—the Bakken regional formation in North Dakota, the Eagle Ford in south Texas, the Permian basin in west Texas and southeast New Mexico—“still yield positive economic returns” with oil at $70 or even in the mid-$60s, Mr. Papa says.

 

[nsaspook]

http://money.cnn.com/2014/12/15/news/economy/2-dollar-gas/index.html?iid=TL_Popular

With OPEC so far unwilling to cut production in order to prop up prices, some forecast that oil could fall to near $40 a barrel at some point in 2015. That would drive gas prices down even more and make gas for under $2 a gallon common at stations across the country.

 

[Naomi]

Semi random: I just filled up my gas tank for $1.99 a gallon. That's insane. But pleasant at the same time.

 

[leroyjenkens]

Semi random: I just filled up my gas tank for $1.99 a gallon. That's insane. But pleasant at the same time.

Where do you live? I'm going to drive all the way there to save 40 cents a gallon.

 

[Naomi]

Where do you live? I'm going to drive all the way there to save 40 cents a gallon.

I live near Phoenix, Arizona. The gas station was in Phoenix. I had to drive a bit to get there too, but the savings were worth it. It cost me less than 30 dollars to fill up my tank when it normally costs me about $50.

http://www.fox10phoenix.com/story/27627836/2014/12/15/phoenix-gas-station-offers-gas-for-199-per-gallon

 

[Danger]

This whole thing is starting to worry me a tad. My existence is reliant upon oil being somewhere close to $100/barrel (CDN, so about $86 USD). Even worse, I'm ethically against the tarsands and the Keystone pipeline, but they're critical to the provincial coffers. It's a very frustrating situation for me, simply because I like to argue a side and I don't have one in this case.

 

[davenn]

Semi random: I just filled up my gas tank for $1.99 a gallon. That's insane. But pleasant at the same time.

here in Australia, in Sydney its ranges from ~ AU$1.20 - 1.30 a litre ($4.80 - $5.20 a gallon) out of Sydney up to $1.55 / litre isn't uncommon

we are still paying at least 20c a litre more than we were the last time oil was ~ $55 a barrel ... the fuel companies ( shell, BP etc) are totally screwing us over :(

EDIT: and while I'm on the subject, spare a though for the poor Kiwi's ( aka New Zealanders) across the pond from us. They were well over $2.00 / litre and they are probably not getting much change out of $2.00 since the drop in prices :(

Dave

 

[Silicon Waffle]

Gas price seems almost the same everywhere. People have means to impurify the original gas after delivered or to change the gas meter and either sell it at lower prices or simply do it as a cheat.
I don't know how gas purity is checked in the US at each station but cheating seems common in my area.

 

[russ_watters]

here in Australia...

Is Austrailia a driving society? I know Europe is not, so their (there) expensive gas doesn't mean much. But it would make sense to me that with a lower population density, people do a lot more driving in Australia, which would make it more painful for you. Essentially, I'm wondering who pays the most on a monthly average basis. I suppose I could google that...

 

[davenn]

Hi Russ

yes very mobile people partly because of the crappy public transport system

 

[lisab]

Hi Russ

yes very mobile people partly because of the crappy public transport system

Oh that sounds familiar!

 

[jtbell]

Last weekend my wife stopped for gas on the way to the supermarket, and paid $2.23 per gallon. When she passed that gas station again a half hour later, the price had dropped to $2.20. According to gasbuddy.com it's now $2.16, the lowest price in our area.

 

[nsaspook]

The current USA price map.

 

[lisab]

A few days ago I filled my tank. When I saw the total I thought the pump had shut off too early. Then I noticed the gallons was about what I expected. Wow, $42 dollars to fill my tank...wow.

 

[leroyjenkens]

$1.88 is the lowest in Kansas City Missouri right now. Anyone see anything lower? That's crazy low. Haven't seen that since the Clinton administration.

 

[Astronuc]

I've seen $2.539 - $2.759 / gal in our area. It depends on the brand.

$1.88 is the lowest in Kansas City Missouri right now.

I doubt we'll see prices less the $2/gal.

 

[mheslep]

I've seen $2.539 - $2.759 / gal in our area. It depends on the brand.

I doubt we'll see prices less the $2/gal.

For the last month gasoline has been been falling roughly 10 cents / week in all regions of the country. The West Coast has the most expensive gas as always, but is on trend nonetheless to hit $2 in February. The falling trend is also helped by being off season for peak driving (summer).
http://www.eia.gov/petroleum/gasdiesel/

It may be that the Saudis have a mindset where they believe they can break any other supplier based on their past history. If this is the case oil could continue to fall. The fact remains that the Saudis must export oil to make money, while US producers do not. US producers have slowed down, but not much. Of the hundreds of drilling rigs in the shale fields of Texas (now the world's 7th largest oil producer by itself), only a hand full have been retired (WSJ). In the days of sandstone reservoir drilling, apparently it was the expense of the dry hole that sank an oil driller in a down market. In shale operations, the dry hole has become rare.

 

[Astronuc]

Actually, I paid about $2.75⁹/gal last week, but this week the same station has Reg (87) at $2.69⁹. Hopefully, it'll go down a bit more before I fill up.

I think gasoline is a bit more expensive in the NE. NY has some high gasoline taxes.

 

[Czcibor]

Here's an article from October that correctly predicted the price war and argues that even if OPEC "wins" in the short term, they still lose in the long term...and that they overestimate their odds/power.

http://www.marketwatch.com/story/can-saudis-beat-north-dakota-in-an-oil-price-war-2014-10-08

And here is an update from a few days ago from the same source that says more forcefully, no, they can't.

http://www.marketwatch.com/story/opec-is-wrong-to-think-it-can-outlast-us-on-oil-prices-2014-12-02

Either way, the next few months will be an interesting experiment in the elasticity of both sides of the market.

I think that there is a hidden assumption in you reasoning. That Saudis are fighting to "win" and their victory means destruction of US shale industry.

I think that they have a choice:
a) to cut output, boost price for a short while and loose market share;
b) to keep output, see price decease, maintain market share, and at least slow down shale oil expansion.

They also have their nearby strategical consideration, like Iran and Isis, which are vulnerable to price decrease.

So if I played with their cards, I'd keep the output unchanged. And hope for economic recovery which would boost the demand.

 

[mheslep]

Saudi Arabia exports about 7.7 million bbls per day, so the Brent price fall from ~$100/bbl last year to $60/bbl costs them ~$300 million per day, $114B/year if it keeps up. The Saudi economy is "heavily dependent" on petroleum production; 90% of the government revenue comes from oil. By contrast petroleum production is roughly 1% of the US economy (i.e. not inc refineries, not gas) and US some of the US oil producers have the option of switching to gas production. If the Saudis are intent on destroying Iran or Russia or Venezuela as a petroleum competitor they might succeed, but if the target is the US IMO they won't.

 

[Astronuc]

Actually, I paid about $2.75⁹/gal last week, but this week the same station has Reg (87) at $2.69⁹. Hopefully, it'll go down a bit more before I fill up.

I think gasoline is a bit more expensive in the NE. NY has some high gasoline taxes.

I think about three weeks ago, gasoline was about $2.55⁹/gal then I paid $2.37⁹/gal two weeks ago, and this weekend it was $2.15⁹/gal where I would normally fill up. We might get close to $2.00/gal.

Back in August, I paid $3.87⁹/gal!

Meanwhile - Saudi Prince: Oil will never return to $100
http://finance.yahoo.com/news/saudi-prince-oil-never-return-163600622.html
Certainly it could go the other way again.

 

[JonDE]

For the last month gasoline has been been falling roughly 10 cents / week in all regions of the country. The West Coast has the most expensive gas as always, but is on trend nonetheless to hit $2 in February. The falling trend is also helped by being off season for peak driving (summer).
http://www.eia.gov/petroleum/gasdiesel/

It may be that the Saudis have a mindset where they believe they can break any other supplier based on their past history. If this is the case oil could continue to fall. The fact remains that the Saudis must export oil to make money, while US producers do not. US producers have slowed down, but not much. Of the hundreds of drilling rigs in the shale fields of Texas (now the world's 7th largest oil producer by itself), only a hand full have been retired (WSJ). In the days of sandstone reservoir drilling, apparently it was the expense of the dry hole that sank an oil driller in a down market. In shale operations, the dry hole has become rare.

Bold is mine.
I know this post is over two weeks old, which is before the information all came out, but I just wanted to point out that it is somewhat incorrect because oil production is slowing down quickly.

This is down from 1,920 for the week ended December 5.

http://finance.yahoo.com/news/numbe...HI5MXByBHNlYwNzcgRwb3MDNgRjb2xvA2JmMQR2dGlkAw--
and here they have the current number at 1750 (the yahoo article above was quoting the same source just at a different date).
http://phx.corporate-ir.net/phoenix.zhtml?c=79687&p=irol-rigcountsoverview
So from 1920 on December 5 to 1750 on January 9. ~10% have closed in the last 5 weeks. With the last week being the worst at 61 closing.

 

[MathAmateur]

Low gas is not much of a threat to alternative energy in the long run. Most alternative energy is used to generate electricity, not run motor vehicles. Anyway, using even the present cheap gasoline to generate electricity would be more expensive than coal. It is actually Natural Gas which is the main competition to alternative energy. It is the cheapest form of electric power generation in the US (for now anyway).It is also not much of a threat in the long run to electric vehicles. The Nissan Leaf costs about 3.5 cents a mile to run. This is equivalent to about $1.40 a gallon gas for a 40 mile to a gallon car (which the Leaf would be if it burned gasoline). That price would bankrupt all the oil producers except Persian Gulf states.Considering that people like Buffet and Gates are betting tens (hundreds?) of millions in making better batteries, I wouldn’t bet against electric vehicles in the near future that can meet the triple demand of low cost, quick refill and at least 300 mile range. That would kill expensive gasoline for good. The Saudi Prince may just be right.