What "Technological Barrels" of Oil Have to Do With Price

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A debate is going on in the oil industry and among its consumers about the medium- to longer-term impact of North American shale oil and Canadian tar sands on the oil price.

While oil from less conventional sources like this has flooded the market, particularly impacting North America and driving down both imports and prices, they remain technologically more complicated to extract.

Nevertheless, these technological barrels of oil are predicted to make up roughly 65% of non-OPEC oil production capacity growth until 2018, according to the IEA as quoted in the FT, while North America is forecast to make up some 40% of incremental oil production capacity growth over the next five years.

Clearly these technological barrels are looking to have a significant impact on global oil supply and prices – which, in turn, affects metal prices.

Indeed, some feel the impact will drive prices lower during this decade, Dennis Gartman, a pundit followed by many investors, is quoted in another article as saying to CNBC this week: “If there were a way to sell OPEC short, I would try to find a way to sell OPEC short.”

If that is the case, a lower oil price could have a profound impact on the global economy, boosting growth and demand for metals. In addition, the price of many energy-intensive metals like aluminum react to a fluctuating oil price – gaining support from rising oil prices and falling with lower oil prices – even though electricity is rarely produced directly from oil.

Not all are agreeing with the idea of lower oil prices, though.

The industry -has been caught between rising output and weak global demand, at least from mature markets, which has resulted in a lower oil price. However, rising production costs are prompting analysts to examine the true cost of production, particularly for new sources of “technology barrels.”

Continued in Part Two. 

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Comments (2)

  1. CPL says:

    One of the first problems with determining costs in energy has little to do with the source of the energy, but the quality. When out in town today, listen to the engines in and around your area. How do most of them sound while idling?

    With lower quality fuel sources the cost isn’t just in the pump price, the energy ownership extends much farther than that. Most of you should be getting regular oil changes now along with filter replacements monthly. Additionally because MANY of the sources are really just refined Tar, the bitumen in it will, not might, WILL require more regular engine flushes and once a year seafoam cleanings.

    So the energy is nothing without the tool to use it. If the tool breaks, all you have is something to burn. The primary point to the digging, mining, drilling and hijacking other countries supplies is to make sure the Engines work.

    Nothing more. I predict a lot of people SOL by the end of this year as the lower quality garbage oil eventually replaces sweet light crude.

    It should also be noted that the Shale and Tarsands oil is limited by the amount of fresh, un-salinated water available. And that is running out everywhere if not also becoming the next crisis in waiting, both in human population drop and environmental.

    All of what you see right now will shut down eventually and nature will reclaim it like the thousands of other civilizations that attempted to push poorly managed resources.

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