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Monday, April 4, 2011

$120 WTI Oil? -- CNBC

Two talking heads on CNBC within the last hour, on two different segments, two different shows both suggested oil will go to $120.

One pundit noted there is some evidence of "demand destruction" or "pulling away from the pump." But he said that was good news: they will spend their money elsewhere. [Assuming they can get to there, as Tina Fey would say.]

It's good to remember that in his energy security speech President Obama was not concerned, noting that a $10 rise in a barrel of oil only translates to a 25 cent / gallon increase in the price of gasoline. And since gasoline is creeping up 20 to 40 cents, it appears that some folks are talking oil up to $120.

The increasing price of oil was related to a) weakness of the dollar; and, b) inflation. It was noted that disasters (Japanese nuclear reactor/earthquake), political events (Libyan "kinetic military action"), and improving global economy (China, India) might be playing a small role in the increasing price of oil.

Meanwhile, CNBC noted several times this morning that the spread between Brent and WTI was widening once again, after coming closer together last week.

4 comments:

  1. CAN YOU TELL ME WHY THE PRICE OF BRENT IS SO MUCH HIGHER THAN THE PRICE I SEE ON CNBC EVERY DAY?
    ALSO WHO DECIDES THE PRICE OF OIL THAT WE AS MINERALS OWNERS GET PB? THERE SEEMS TO BE QUITE A DIFFERENCE WHAT THE OIL PRICE IS LISTED ON THE MARKET AND WHAT THE N.DAK SPOT PRICE FOR OIL IS, ANY COMMENT? THANKS ARDIS J

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  2. 1. I've talked about the Brent/WTI spread several times. This is the most recent:

    http://milliondollarway.blogspot.com/2011/02/brent-wti-spread-explained.html

    2. The company who owns the well (most often the operator, but not necessarily) sells the oil for the best price he/she can get. Sometimes the oil has been sold on contract before it's even been produced (hedged). If not on contract, it's whatever the seller/buyer agree on. The number you see on the television crawler is the price buyers/sellers agree on for some point in the future. Just like the stock market. A share is sold at a price agreed upon by buyer/seller.

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  3. Price in the field is "adjusted" for location and grade.

    Mo pays transport cost from wellhead to point of delivery which can be hundreds of miles (location) as does the oilco on it's oil. Pipeline is lowest cost but a lot goes by truck (higher transport cost).


    Grade adj is for specific gravity and sulpher relative to the benchmark (WTO)

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  4. I did not know that (mineral owner shares in cost of getting oil to the point of delivery). Very interesting.

    You are correct; 75% of all ND oil is still trucked at some point of its journey (generally from the pad to the nearest pipeline). Until there are several wells in one area it is not economically feasible to put a pipeline in, I assume.

    Thank you for taking time to comment. Bottom line: lots of factors go into determining how much a mineral owner will get. But the starting point is on the mineral owner's statement: the price the operator/company that owns the well got for the oil. But lots of nickel and dime-ing after that, I assume. I don't own mineral rights so I have not had the pleasure of sorting out a statement. Smile/frown.

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