According to more EIA data, total spending by oil (and natural gas) companies grew 11 percent on average per year from 2000-2012, and spending on development activities increased by 5 percent ($18 billion) in 2013. All this culminated in the U.S. production of 7.9 million barrels of crude oil per day in 2013, a level the country hasn’t hit since 1988.

U.S. production is expected to continue rising, to 8.4 million barrels per day in 2014, and 9.1 million barrels per day in 2015.

...has prompted the oil-rich Gulf sheikdoms to keep pumping oil even as the price falls. In their game of petro-chicken, the desperate sheiks hope that either their poorer enemies will run out of cash or that fracking in the U.S. will become unprofitable and cease.

The U.S. has suddenly become the world’s largest combined producer of oil and natural gas.

Everyone seems to have forgotten about “peak oil” — the catchphrase of the new millennium.

Just two years ago, when up for reelection, Obama reminded Americans, “We can’t just drill our way to lower gas prices.”

ARAB Oilmen, not US oilmen, returned hundreds of billions of dollars to American consumers. They, not Ivy League experts and Wall Street grandees, kick-started the economy where federal subsidies had failed to. They, not the policies of the Obama administration or the rhetoric of Secretary of State John Kerry, weakened our enemies.

... like he sez ↑↑↑ ...


It's kind of hilarious and pathetic that they managed to segue into "Obamacare" from the falling price of oil. I'm surprised that the didn't bring up Bengazi.

There are at least three numbers that you have to remember when we talk about whether falling oil prices are a problem for a country:

The fiscal breakeven: The oil price necessary for a government to avoid running a budget deficit.
The accounting breakeven (or what most people just call the "breakeven"): The oil price necessary for an oil drilling project to be profitable
The cash cost: The oil price necessary for drillers to keep their pre-existing projects operating.

First stop: fiscal math. For countries like the United States that don't generate a great deal of tax revenue from oil production, falling prices are generally good economic news, since cheaper fuel puts more money in consumer profits. But for the oil dependent nations of OPEC, cheap crude is a budget nightmare. And, as Deutsche Bank pointed out in an October analysis, oil producers like Russia, Venezuela, and Nigeria all need prices above $100 a book to balance their books. Even Saudi Arabia needs around $99 to support its spending.

But deficits are a bigger problem for some countries than others. Thanks to their massive dollar reserves, the Saudis can afford to overspend for a while. Russia, too, has a little bit of a cushion. Countries like Nigeria that barely have any reserves are in far greater trouble.

It's much more costly to go hunt for oil in the frozen arctic deep, or to use techniques like fracking and horizontal drilling to extract oil out of U.S. shale deposits, than it its to pump conventional oil straight out of the Arabian desert. As this graph from Morgan Stanley (posted by Business Insider) nicely illustrates, the Middle East indeed has the lowest breakeven prices—generally falling well beneath the $40-a-barrel mark. The number can be far higher in other parts of the world, such as Russia, or in America's shale basins.




The breakeven price is especially important in the United States, because the unconventional wells that have fueled our domestic oil boom deplete quickly, meaning that companies need to keep drilling new ones to keep production up. If it's suddenly not profitable to do so, then we should expect the flow of crude to taper off (as I wrote last week, that wouldn't necessarily be a bad thing). This is one reason that many analysts think, rightly or wrongly, that the Saudis are essentially waging a war of attrition to drive down U.S. production and preserve their market share. Not so sure American oilmen are ecstatic about this

But even if a pre-existing well stops being profitable based on the cost it took to find and drill, that doesn't mean Exxon or Shell will suddenly shut it down. No, the price to keep your eye on at which oil companies will suddenly start pulling the plug on projects that are already operating is known as the "cash cost"—the bare amount of money necessary to cover daily production, taxes, and marketing. And that figure can be quite low, as shown in this graph from Morgan Stanley. The green tracks the cost including royalties paid to the government, whereas the blue is raw production expense.

4) OPEC and Russia refuse to cut supplies in the face of building stockpiles.

I don’t know much about crude oil markets—having degrees in geology, economics, formerly working as an investment banker, futures trader and geologist—but I suspect $25 oil has a lot of headwinds.

As for Saudi Arabia, government officials have made it abundantly clear they are willing to keep on pumping oil and to let prices fall further.

It’s part of an urgent gamble that lower prices will kneecap those rivals that have usurped OPEC’s dominance, such as the Canadian oil sands and America’s fracking industry, which both have higher operating costs than Saudi producers.

As for Saudi Arabia, government officials have made it abundantly clear they are willing to keep on pumping oil and to let prices fall further. It’s part of an urgent gamble that lower prices will kneecap those rivals that have usurped OPEC’s dominance, such as the Canadian oil sands and America’s fracking industry, which both have higher operating costs than Saudi producers. At the end of December, Saudi oil minister Ali al-Naimi said he won’t budge from this commitment to maintain output and defend Saudi Arabia’s market share, even if oil prices fall to US$20 a barrel.

Besides, as the chart below shows, U.S. oil production was booming for three years before prices reacted.