Is Crude getting more difficult to find or are the suppliers raking in an unjustifiable fortune?Crude Oil Price?
Crude oil prices are driven primarily by supply and demand issues, with some amount of volatility caused by speculation.
Who's really getting rich in all of this is the foreign governments. Most people don't realize that foreign countries are becoming increasingly cunning in the way they structure the production and revenue sharing agreements with the oil companies they hire to drill and produce their oil. In many cases governments set target prices, such as $25/bbl. The oil company might receive 50% of the revenue below that price, but only 2% to 10% of the revenue above that price. In that way, the oil company is enticed into signing the agreement by ensuring him a reasonable return on the huge investment he must make to find, drill and produce the oil, while the host government retains all of the up-side.
Oil is getting harder to find, but not as much as some might think. If you are looking to find it in hospitable climates with friendly governments, those opportunities are few and far between. Much of the world's un-tapped conventional oil resource lies in the nastiest places for governmental stability and corruption, or is in remote, inhospitable, and technically challenging areas such as the arctic or deep-water offshore. When an oil company chooses to invest hundreds of millions to billions of dollars in such areas, the probability of success must be carefully considered against the opportunity for profit. Among other things, there are geologic risks (is there actually oil there to find, and in sufficient quantities to make it profitable), political risks (will the government keep its commitments, or will it change the rules and take it all away before I can reap the rewards of my investment), technical challenges (nobody has ever drilled that deep before), and oil price risks (what will the oil price be in 5-10 years after I find oil and build the infrastructure necessary to begin producing it).
Sure the big oil companies may look like they're raking in the dough right now, but what is the rate of return on the risks they took and the investments they made 5 to 10 years ago when they decided to bring on-line the oil we're putting into our gas tanks today? And how much of today's profit are they re-investing into the business to keep the world running? Of the big-guys, Shell, Total, and Chevron do the best, re-investing 71%, 63%, and 60% respectively of their cash flow into new projects. ConocoPhilips and Exxon trail the pack, re-investing 48% and 29% respectively. Take away that continuous stream of reinvestment, and you'd see world oil production go into a downward spiral that would really make prices spike. That ';spike'; would last for years (if not longer) because it takes many years of planning and construction to bring new projects on-line, and because there is already a shortage of drilling rigs and qualified personnel.Crude Oil Price?
The OPEC countries are limiting the output of barrels of crude oil resulting in the buyers having to bid for same barrels available hence the price competition comes into play raising the price of crude oil.
Oil speculators are making the money,Buy cheap sell dear.
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