Mrcauser’s Weblog

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Every few years we run out of oil, then we find more. All we need is a price increase or tax cut. This time the economy collapsed when it happened. No really.

Oil prices are set to spike again | Well prepared | The Economist

The cost of production is no more static than the price of oil. Falling prices for important raw materials, such as steel and natural gas, should help to bring down development costs. By the same token, the cost of hiring some kinds of drilling rigs is falling. The strengthening dollar also helps, points out Paul Sankey of Deutsche Bank, since that tends to increase oil firms’ dollar-denominated revenue relative to expenses in other currencies.

But according to Francisco Blanch of Merrill Lynch, the rising cost of capital is likely to outweigh all these benefits. Tar-sands schemes, like most oil projects, are very capital-intensive and so very sensitive to changes in financing costs. He believes that higher borrowing charges could push the cost of new tar-sands developments as high as $150 a barrel by 2010. So if demand for oil has started growing again by then, and if tar sands remain the source of marginal production, then the oil price will have to rise back to this summer’s levels to stimulate increased supply. “The age of easy oil”, warns the Emirati minister, “is gone forever.”


Written by mrcauser

November 10, 2008 at 9:09 pm

Posted in Uncategorized

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