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Saudi's cost of production is $5-10.  Very little of our current production has been brought on stream since oil shot up from $20/bbl.  Even tar sands are profitable at $40-50.  

If we cut most transportation/heating/electricity demand away leaving just lubrication, jet fuel and ship fuel, we'd stretch out the cheap supply for a long long time.

by HiD on Sun Jul 13th, 2008 at 08:19:07 AM EST
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Yes, so that says that since current output includes oil tar sands, $40-$50 sets a lower limit on the current marginal cost at current output levels. With recovery in existing fields dropping by anywhere from 3.5% to 5%, climbing down below $40-$50 requires ongoing annual reduction in demand of 3.5% to 5%, plus enough additional below that to lead to abandonment of tar sands production.

If there is Gulf of Mexico Oil reserves to be exploited at a cost of $60-$80 / barrel, it would seem that burning through the $5-$10 infra-marginal production will certainly bring $60-$80 / barrel production cost oil onto the margin, and the rate at which it is brought into production will of course be affected by perceived User Cost of lost capital appreciation ... since the capital value stems from the differential between crude oil price and cost of production, obviously the higher the cost of production, the more significant the capital appreciation for the same crude oil price increase.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Sun Jul 13th, 2008 at 10:38:33 AM EST
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