Low Oil Prices: Who's Making the Money?

From this thread: http://boards.straightdope.com/sdmb/showthread.php?t=780052&page=2

I realize with oil prices as low they are, someone is profiting from this. But, down here in Louisiana, we’re fucking starving. Unemployment rates were in the 3s in some places to the 7s now, Also, we have the loss of oil and gas taxes for the state coffers which is running $1.9 billion deficit.

I can see the airlines and other transportation companies doing well, but are we seeing any trickle down reduced costs or is their time to make a killing?

I am.
Just filled up the tank for $ 1.81 a gallon, thank you.

I filled up for $1.40 per gallon, but I’m ready to forgo that savings to help put a lot of people back to work.

Anyone who can produce oil more cheaply than the price it can be sold for is making money. Most U.S. producers are high-cost producers, the cheap-to-get stuff mostly exhausted. That’s part of why we used to have to import so much oil, before the fracking revolution. At $100/bbl. you could make a lot of money, but at $25/bbl. a lot of the smaller drillers have gone bankrupt.

This all happened because Saudi Arabia, which produces oil for about $1-$2/bbl. decided a while back to either not cut or increase production. While Saudi Arabia still makes money, they don’t make nearly the amount they need to to keep their country afloat and on the present trajectory, will run out of money in 5 years. The rest of OPEC is in similarly bad shape and don’t have the surplus to ease the pain. Saudi Arabia may have done this to force high cost producers out of the market, to fuck Iran, which is finally able to sell oil now that the sanctions have been lifted, or to fuck Russia, or some combination of the three.

Another factor is that the Chinese economy has slowed greatly and subsequently reduced it’s demand for oil.


The price of an airline ticket from the east coast of the USA to east Asia is down significantly, competition is alive and well in the airline industry even if it seems like they are nickel and diming you to death with add on fees.

The price of shipping has decreased so a lot of shipping companies are losing money (but not as much as they would be losing if oil was still expensive), with the sole bright spot being people who operate oil tankers (they are making more money).

I read somewhere that the optimal price of oil for the US economy used to be as close to zero as possible (because we were importing so much of it and cheap oil meant more economic activity) but is now closer to about $80/bbl.

I’d be willing to see $4/gallon if it would mean good paying jobs for a large portion of our work force. The oil industry has by and large replaced our manufacturing industry for good paying working class jobs.
Our middle class has shrunk as our working class has become working poor. They now live paycheck to paycheck and have very limited ability to absorb financial shocks like the loss of a job or a prolonged illness. Our middle class has not seen wealth or wages increase (in real terms) since the 1980s despite a significant increase in productivity. All the extra wealth created by improved productivity has gone to the owners of capital. There was once a time when wages increased with productivity, now increases in productivity are almost entirely captured by the owners of capital.

I would expect to see the lower transportation costs of, for instance, grocery stores reflected in the retail prices of groceries. I’m not. So the grocery stores, or their wholesalers, are making money.

What percent, on average, does transportation add to the cost of groceries? And, are grocery prices raised when transportation costs rise?

IOW, it might be a bit more complex than you are assuming.

Well, when grocery stores have, in the past, told us that prices are going up due to the increased costs of transportation, I think it’s safe to assume that transportation costs are relevant. Or, I suppose, they could have been lying.

Exactly. Well said.

Yeah, I’ve read that it’s principally a deliberate decision by the Saudis to lower prices, even though it draws down their cash reserves. Presumably this is to hurt and even drive out of business other, higher-cost producers. Whether that’s North American frackers or Iranians or others…I don’t know much about Saudi priorities.

His numbers on Saudi oil production cost seem completely wrong. $1-$2/barrel is quite off. More like $9 -10. And has been said in other threads, there is no reason to think that Saudi Arabia has been appointed by god to be the swing producer and lower production unilaterally. SA has said in the past they might lower production if they got guarantees from other big producers to do the same. They heard crickets in response, which is at least more honest because usually their OPEC “allies” just cheated on agreed levels.

So “exactly” doesn’t really fit.

What I’ve read from knowledgeable people in several newspapers and magazines is that Saudi Arabia badly misread the situation in fall of 2014 when they chose to keep their own oil production high. They believe that by doing so, they could knock American shale producers out of business and force the price of oil back up to around $100 per barrel. Obviously that has not happened.

Now, Saudi Arabia is looking at disaster. For generations they’ve financed everything with oil money: welfare for the poor, decent subsidies for the middle class, and extravagant luxuries for the rich. If they continue burning through money, they’ll run out in five years. They are already cutting back subsidies, but obviously the government is walking a thin line. If they cut spending too much, the people will get restless. And there’s no reason to believe that the price of oil will go back up anytime soon. The economic situation in the coming years will be quite painful for many. However, if that leads to the people rising up and overthrowing the House of Saud, it will all be for the best. The Sauds are truly one of the most evil group of people on the planet.

And yes, it won’t be great in places like Louisiana either, but nobody will starve there.

Looks like your cite I’d from Cnn. I’m not sure where they get their numbers. I’m looking at a char at knoema.com pegging the cost of Saudi onshore production at $3. Sorry I can’t link, but easy to find with Google.

Yes that number is from CNN. They apparently got it from research firm Rystad Energy. Regardless, 3 isn’t between 1 and 2 either.

Yes. If the goal is to be technically accurate than you are correct. However, in context I read the quote to be a throwaway number used to illustrate that the Saudis produce oil very cheaply… Which is correct.

However, I said “exactly correct.” So, you are right. It was not “exactly correct.”

Kind of nitpicky, don’t you think?

If your knoema graph is more reliable than CNN and Rystad Energy, then yes it’s a bit nitpicky. But I am not so sure about that and I challenged more than just his numbers.

And they announce price reductions due to lower transportation costs? I doubt it. Unless you’re keeping meticulous records of grocery costs, you are most likely not seeing the ups and downs as they occur in real time. But maybe you are keeping such records, in which case it would be interesting to see them.