Fact or Fiction: $200 Oil Is Almost Here

Photo Credit: ConocoPhillips

What’s at stake?

• Currently, 66% of the price of gasoline is derived from the cost of crude oil

• According to a Gallup poll, $5.30 per gallon is the “tipping point” at which most Americans would feel forced to make changes

Economy-crushing gas prices

Photo credit: Flickr/AgentAkit

What’s at stake?

• It’s estimated that $200 oil would cause gas price to rise above $7 per gallon

• A price that high would have significant ripple effects throughout the American economy

Economy-crushing gas prices

What’s at stake?

• The price of everything from food to clothing would rise

• Global trade would slow• “Staycations” would be the

norm• Our highly mobile society

would become immobilized

This is more than just some pain at the pump

This is not a future anyone wants …

… so what’s around the bend?

$200 oil is mere fiction

American shale oil is a game-changer

• 5 times as much oil as previously thought

• Bakken and Eagle Ford are becoming household names

Source: Vanguard Natural Resources

$200 oil is mere fiction

• The Gulf of Mexico has reversed its production decline

• New oil sources have been found in Texas’ legacy Permian Basin, which is now believed to hold the world’s second largest oil field

New life is breathed into legacy plays

Photo credit: BP

$200 oil is mere fiction

• Canada has the third largest oil reserves in the world

• Production is expected to grow from 1.8 million barrels per day in 2012 to 4.5 million barrels per day by 2025

Don’t forget about Canada

Courtesy Cenovus Energy Inc.

$200 oil is mere fiction

• A production cut is rumored because of increased oil output from North America

• Billionaire Saudi Prince Alwaleed bin Talal warns that his country must diversify its economy

OPEC is worried

Photo credit: Flickr/Gamma Man

This is good news, but …

… there is more to the story.

The return of cheap oil is fiction, too …

… in fact, the days of cheap oil

might be gone for good.

Oil prices likely stuck over $100

• Costs are upwards of $10 million per well

• Very high initial decline rates mean new wells need to be drilled just to maintain production rates

Shale oil wells are expensive to drill

Photo Credit: ConocoPhillips

Oil prices likely stuck over $100

• ExxonMobil’s massive Kearl oil sands project cost C$12.9 billion to build

• Breakeven costs typically $40-$70 per barrel, leaving little to no margin if oil prices fall

Oil sands are expensive to develop

Photo credit: Devon Energy

Oil prices likely stuck over $100

• Deepwater Horizon added to the industry’s costs

• Day rates for deepwater drilling rigs are in excess of $400,000 per day

Deepwater both dangerous and expensive

Photo Credit: U.S. Coast Guard

Oil prices likely stuck over $100

• Rumored production cut is needed to keep oil over $100 per barrel

• Production of many fields is declining

• Middle East in constant turmoil

OPEC has set $100 as the floor for oil

Photo credit: Flickr/Arenamontanus

… IF you are positioned to profit from it. This is what you need to know!

All of this is actually good news for you …