Claims about oil

“All told, roughly 2.6 million barrels a day of world crude oil production comes from projects with a breakeven price in excess of $80 a barrel,” the report said. World oil production was 93.2 million barrels a day in the third quarter.

You will note, of course, that because of fixed costs and option value, a currently unprofitable project can remain up and running for a long time to come.  (As explained in the Cowen and Tabarrok Principles text.)  Here is a related point:

At the same time, analysts have also noted that for many shale producers, a large chunk of production costs — acquiring acreage, contracting wells, etc. — have already been spent. As a result, the more important figure might be “half-cycle” production costs. which analysts at Citi last week pegged at between $37 to $45 a barrel.

From William Watts, there is more here, including a discussion of which forms of fossil fuel energy are profitable at $80 a barrel.


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