Friday, December 19, 2008

Factors driving low oil prices

Once a well is put into production, the marginal cost to pump a barrel is relatively low. The biggest proportion of oil cost is the capital cost; finding it, drilling the well, and linking the well to pipeline network. As long as price per barrel is enough to provide positive contribution margin for a well, the well will be kept in operation. Based on historical trends that breakeven price is quite low.

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