Oil macro analysis, page-86

I still think oil is the main culprit. When LNG hit $2.25 a couple of months back the oil price recover briefly to $55/barrel for Brent crude.

Yesterday's oil prices I believe were an overreaction to the OPEC meeting, and I'm more confident that oil is set to recover.

Did some reading and posted an article in another thread and points to note are:

- Each oil well produces at a decreasing rate each year, dropping 2% to 5%. This means oil wells have a 20+ year operating life though.
- You have fixed costs and variable costs, and an oil well typically runs on a $20 to $30/barrel variable cost (labour and electricity).
- This means at $40 to $45/barrel they can cover the variable cash cost, some of the fixed costs, but definitely not provide a return on investment as well as putting funds aside for exploration.

So with a diminishing return from each oil well over time, no new wells, and a net loss overall, something will need to give and the oil price should recover.

The article I posted was from January 2015 when oil was between $60 to $70/barrel, and it was noted that oil companies were already making losses then. Now it's just cash accounting for survival at $40/barrel.