The Cost of Doing Business in Oil

While today may see a downturn in the cost of gas at the pump, it doesn’t mean that the price of oil as we take it from the ground is going to continue to go down. In the past the price per barrel of oil has gone up and down with alarming regularity and will probably continue to do so.

While vendors thrive, who make everything from monster sized vehicles for working the oil fields to the rotary shaft seal units that keep pipelines from bursting, the industry itself is in the midst of change. The most recent boom in oil prices allowed many oil producers to continue to contribute to their reserves, but the time will come when this will not be sufficient. Are we ready to face the consequences of slow times on the oil fields?

Reaching the Breakeven Point

One of the key details for this industry is the need for it to keep its prices as far from the break-even point of a barrel of oil as possible. In the industry, the accepted price for this is around $35 a barrel and it would be rare for it to reach that price point. The decision by the Arabian countries to curtail production in the last few years to keep prices artificially low has not been successful.

This is because the demand for oil has been going down for the last decade as alternative fuels have begun to eat into total needs. While many oil producers thought the price of $100 a barrel would continue to be standard, today that price has been reduced to $45 a barrel, well within reach of the breakeven point. Can the industry survive if it should fall below, even at today’s slower production?

Supply and Demand

While it is true that the price of crude oil per barrel has continued to fall, many believe this is a temporary situation. As many of the smaller oil producers drop out of the race, and the larger producers band together to manage the amount of oil on the market at any one time, many see the price increasing back to around $90 per barrel by the end of 2017.

While alternative fuels can indeed provide a needed relief from the pollution that many see as the cause of global warming and climate change, many manufacturing processes still need to use oil based energy. As natural gas continues to flood the market, homeowners are turning to it as a new and cleaner source for heating and cooking. Meanwhile research into renewable sources such as the latest announcement from Tesla regarding low cost solar roofing tiles may change the landscape even further.

The Future of Oil

While most people believe that we will continue to drill for oil and use it to power our businesses and homes as well as fuel our transportation, change is inevitable. The oil industry itself is actually willing to concede that unless they change how they drill, the process of refinement and how the end product is used, they will become a dinosaur in the energy industry. The future of this resource is in question, but never count it out for now. Until we find another solution, the oil industry, whatever form it takes, is here to stay.