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Production cost, marginal cost and price of oil

Today, understanding the evolution of the price of a barrel of oil it is better to focus on the marginal cost at production cost.
Rather than ask you a brutally abstract formula to calculate the marginal cost we will proceed with a simplified example to the fullest.

Imagine a world with 10 oil wells that can produce 1,000 barrels per day.
There are nine oil wells that produce at a cost of $ 25 and $ 100 in the 10th.

- If the request is 9 000 barrels per day, the nine wells with a production cost of $ 25 are used.
The daily bill for 9 000 barrels a day is 225 000 dollars (9 000 barrels* $25)

-If the application is brought to 9,001 barrels a day, prices will rise to $ 100 and the 10th will be well used.
The daily bill for 9 001 barrels days will be 900 100 $ (9 001 barrels*$ 100).

With this new barrel of oil, the production cost increases from 25$ to 25,001 dollars and the marginal price of a barrel of additional 675 100 $ (9 00 100-225 000 $ = 675 100 $).

In this example an increase in demand of 0.01% increases the price of 400%, without manipulation, without speculation and without "global conspiracy" of oil companies.

With rising oil demand came gradually in the area of ​​the "tenth oil wells" since 1998. This "tenth oil wells" are the oil sands of Alberta, the ultra-deep offshore Gulf of Mexico, Gulf of Guinea, Brazil, oil shale in Texas, the extra-heavy oil in Venezuela, the Brazil biofuels, liquefied coal from South Africa...

Dr Thomas Chaize










































































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