Tuesday, May 17, 2016

Oil Sands after Wildfires


Short term impact to Canadian oil production due to wildfires.  Optimistic assessment projecting a quick return to previous production levels. USD/CAD in view.





7 comments:

Bob said...

Hello, the price of oil has had a greater impact on tar sands output. The burning of Fort McMurray will have its greatest impact on the property rent-seekers that infest every boomtown.

Matt Franko said...

Bob article says output has stayed the same as the price dropped...

ie YUGE rent removed from the price and terms of trade reduced for Canadian sellers of WCS in USD terms... now reflected in the exchange rate USD/CAD...

If a nation can impose a YUGE rent on another nation, it results in a stronger currency for the rent seeking nation...

MMT (sometimes...): "its about price not quantity...."

Bob said...

Thanks to investments in incremental oil sands production made when oil prices were far higher, the region’s output has been gradually rising (pre-wildfires), and that growth is expected to continue (reflecting investments in incremental production already committed to).

Translation: we have to sell at a loss to recoup our investment, because not selling at all won't recoup anything.

And when future production remains flat because no new investments are being made, that will drive the price higher. Of course, you'll call that another rent grab.

Bob said...

Here you go:
http://insideclimatenews.org/news/23022016/tar-sands-becoming-worthless-production-rises-even-prices-plummet

Yet tar sands production has continued to increase because the wells represent long-term investments that can't be shuttered without significant financial losses.

"This is like a toboggan going down a hill," said Maurice Dusseault, a petroleum engineering professor at the University of Waterloo in Ontario. "You can't stop a third of the way down very easily and then start up again. You've got to stick it through to the end of the project."


Enjoy the low prices... but in the end we will have to pay the piper...

Matt Franko said...

They have the price of their own product in their cost models...

Matt Franko said...

Once you make the investment, all you have to cover are variable/direct costs...

If they are using credit then they may have to give it up, but they can still keep operating....

I know this guy who had over 500k in his restaurant and the bank foreclosed on him and he lost everything he had in it... its still open and doing business the bank hired a professional rest. management company... he has to drive by it all the time the parking lot is packed...

Bob said...

Unconventional oil production is a bit different from a restaurant. It's like being reliant upon a master chef, while failing to train new chefs. Inevitably you'll run into a problem where the lack of investment bites the oil consumer in the ass.

Think of ELI the ICE man.