In our series on the plummeting price of oil, here’s the inside take on how low Oil can go before it’s no longer economic t0 turn on the tap.
The best way to look at when the biggest oil players will start feeling the squeeze from lower prices is the “cash cost.”
“Cash cost is the only true floor,” Morgan Stanley analyst Adam Longson said.
Cash cost is basically what it takes to keep oil production going, not what it takes to make oil production profitable or for a government to hit its budget projection. If you drop below your cash cost on a project, you’ve got to turn out the lights.
As you can see on the far right, the Canadian oil sands and the US shale basins are very expensive to tap into. Meanwhile in the Middle East, the Saudis, the Iraqis, and the Iranians basically stick a pipe in the ground, and oil comes out.
