Oil Price Sensitivities | Russell T. Rudy Energy LLC
Most of us are well aware of the oil price elasticity as it relates to consumer demand for petroleum products. “Rigzone” recently wrote about a study by consulting group, Wood Mackenzie, which deals with the sensitivity of global oil production to crude prices. Since this study involved global production, they used the price of Brent crude, as opposed to West Texas Intermediate, which is more relevant to U.S. domestic production. However, the principles are the same, even though specific cases might vary.
About 1 million barrels of oil per day (bopd) are produced by U. S. “stripper”, or small volume, wells. Many of these only produce a few barrels a day. To put this in perspective, total U. S. production is about 9 million bopd. These wells can go cash negative at anywhere between $20-50 per barrel.
Worldwide, at $50 per barrel, only about .2% of global production (approximately 190,000 bopd) will be cash negative. At $45 the impact doubles to .4% (approximately 400,000 bopd). However, if the price of Brent drops to $40, 1.6% of global production will no longer be economically viable and about 1.5 million barrels a day will be taken out of the global supply chain.
This is an oversimplification of a complex article, but you can read it in its entirety at www.rigzone.com/news/article.asp?hpf=1&a_id=136693&utm .
