The global crude oil production cost plummeted by 10%, what does it mean for oil prices?
Original title: The global crude oil production cost plummeted by 10%, what does it mean for oil prices?
Rystad Energy’s latest analysis report shows that the cost of oil production has dropped to around US$50 per barrel, and production costs have fallen in the past two years About 10%.
In fact, the cost of crude oil production has been declining in the past 6 years. Since 2014, the cost has fallen by 35%. This huge drop was largely due to a type of crude oil drilling activity-the Rystad Energy report pointed out that among many crude oil production projects, the most cost-effective offshore crude oil drilling and development project.
As we all know, crude oil, as a commodity, has a very close relationship between its cost, price, supply, and demand. Today, the price of crude oil in the market is a quotation formed by marginal sellers and marginal buyers. Simply put, oil prices are the result of a game between supply and demand.
The current oil price may have reflected the changes in crude oil production costs; crude oil prices in turn will also have an impact on cost control. The price drop will counteract the production formula P=MR=MC, forcing the market to seek a new dynamic equilibrium point of supply and demand.
Back to the present situation, Rystad Energy’s latest crude oil supply cost curve shows that the equilibrium price of crude oil production for 100 million barrels per day has been continuously falling in recent years:
Previously in 2014, the Rystad agency estimated that the price required to produce 100 million barrels of oil in 2025 was close to $90 per barrel; this estimate was revised to 55 in 2018 About US$/barrel; and now, this figure has fallen to US$50/barrel.
The latest report also revealed another key trend.
Before 2014-2018, the crude oil supply cost curve has been shifting to the right. In 2014, Rystad Energy estimated that its crude oil production potential in 2025 was only 105 million barrels per day. In 2018, this number increased significantly to approximately 115 million barrels per day.
However, the curve suddenly peaked in 2018, and Rystad Energy lowered its global crude oil production capacity to approximately 108 million barrels per day. Move left.
The Rystad report explains that the main reason for the continuous decrease in crude oil costs in recent years is that the cost of oilfield services has decreased, especially after the oil price plummeted in 2015, oilfield service companies need to reduce Prices charged to crude oil exploration and production companies to remain competitive in a challenging market environment.
Rystad Energy upstream research leader Espen Erlingsen said:
”The meaning of crude oil breakeven price drop Yes, in the past two years, the upstream industry has become more competitive than ever and can provide more products at lower prices. However, it should be noted that there is still a large part of the crude oil industry whose average breakeven price is still Higher than the current oil price. This shows that to revitalize upstream investment, oil prices must rebound.”
What is the main source of supply in the oil and gas market? ?
Rystad Energy’s data show that from 2014 to 2018, tight oil and OPEC+ were still the main sources of the oil and gas market.
In 2014, Rystad Energy estimated that the break-even price of tight oil was US$82/barrel, and the potential supply by 2025 was 12 million barrels/day.
Since then, Rystad Energy estimates have been continuously adjusted. In 2018, the agency estimated that the break-even price of tight oil was 47 US dollars per barrel, and the potential supply was 22 million barrels per day.
Today, the trend has changed, and the breakeven price of tight oil is still falling, currently reaching an average of US$44 per barrel. However, the production potential of tight oil has been lower than estimated in 2018, falling to 18 million barrels per day.
Behind this change, the explanation given by Rystad Energy is that due to the epidemic, tight oil production in the first half of this year has fallen sharply, and production in the tight oil industry may be slow next year. The recovery has led to a decline in its production growth rate.
The crude oil production industry where costs have fallen is not limited to tight oil.
Between 2014 and 2018, the crude oil production cost of the shelf and deepwater projects was reduced by about 30%. In the next 5 years, this trend may slow down due to the reduction of newly approved offshore production projects, but the overall impact should not be significant. Since 2018, the break-even price of offshore crude oil production has been falling, and the production price of deepwater oil fields It fell 16%, and the diving oil field fell only 10%.
Have you seen it?
In the next five years, the cost of offshore crude oil production will drop even more than the cost of tight oil. At the same time, the potential supply of crude oil from offshore development projects to 2025 has not changed much. Therefore, if nothing happens, offshore crude oil production companies have a better competitive advantage and will become the big winners among all crude oil suppliers.
As for onshore crude oil production in the Middle East, the Middle East countries as we know it, the cost of crude oil production is still the lowest, with an average break-even price of around US$30/barrel , This is also the market segment with the greatest potential for Rystad Energy. Offshore deepwater production is the second cheapest source of crude oil supply, with an average break-even price of US$43/barrel. The cost of onshore supply in Russia is higher because of its higher tax rate.
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