Gregor says "Oil at 34.00 is Free"

Gregor MacDonald

Perhaps we’re going to live in a global economy where oil is five dollars a barrel, and bread will be 25 cents a loaf. Until then however, benefactors are willing to give 100 million to Stanford to research alternatives to oil, and 100 gallons of diesel poured inside a John Deere tractor will plant and harvest alot of wheat.

Is there a cheaper asset on the planet right now, besides oil? 34.00 dollars buys you 1700 kw hours of power. Oil at 34.00 might event be cheaper than 34.00 dollars worth of meat or bread, which you could use to power your own body. Can you generate 1700 kw hours of power, after eating 34.00 dollars worth of food? I doubt it.

I submit that oil at 34.00 is basically free. If we split the world into two parts, non-OPEC and OPEC, you’d be hard pressed to find any meaningful quantity of oil in non-OPEC’s purview that can be lifted for 34.00 dollars. Of course, in OPEC you could. There’s no question that oil is still pumping from older, legacy fields in OPEC at 1-5 dollars a barrel. But OPEC now produces about 45% of global supply. And of course much of OPEC’s newer oil has lifting costs closer to 15.00 or 20.00.

Introduce a global depression, however, into these equations with the costs of metal, electricity, and labor crashing and surely we can indeed get the nominal price of oil lower. Just make sure oil rig workers can build a sandwich for 75 cents, and that pints are 25p in all the pubs along the Scottish Coast.