Oil at $40

[Marina Schwarz + 1,576]

I risk bursting @Tom Kirkman's $70 bubble but, well, there's talk about $40 for a barrel of Brent. Anyone else having a deja vu? 

[Tom Kirkman + 8,860]

No worries, I'm in such a great mood after speaking this weekend that nothing can bring me down for quite a while.

I see no viable reason for $40 Brent any time soon.  Short term price gyrations are mostly just short term attempts by computer algorithms to profit from momentary spikes and drops.

Pay no attention to that computer algorithm behind the curtain.

[specinho + 439]

 

Edited April 14, 2019 by specinho

[Meredith Poor + 883]

Gas price where I live: $2.80.

32 KWh per gallon of gasoline x 3 = 96Kwh needed to convert CO2 and water to an equivalent hydrocarbon.

96Kwh / 5 hours per day of sunlight = approximately 20Kw of panels.

2.80 x 2556.75 days in a seven year time span = $7150.

20,000 watts / $7150 = 35 cents per watt.

Depending on where you look, you can get solar panels at 35 to 45 cents per watt (US), 20 cents per watt (China), or free (used panels from damaged installations). 'Free' panels have certain restrictions on use and buyer has to pay shipping costs.

Keyword search 'Carbon Engineering'. They're now getting deployment scale funding - this is no longer an R&D project.

[Old-Ruffneck + 1,177]

7 minutes ago, Meredith Poor said:

Gas price where I live: $2.80.

32 KWh per gallon of gasoline x 3 = 96Kwh needed to convert CO2 and water to an equivalent hydrocarbon.

96Kwh / 5 hours per day of sunlight = approximately 20Kw of panels.

2.80 x 2556.75 days in a seven year time span = $7150.

20,000 watts / $7150 = 35 cents per watt.

Depending on where you look, you can get solar panels at 35 to 45 cents per watt (US), 20 cents per watt (China), or free (used panels from damaged installations). 'Free' panels have certain restrictions on use and buyer has to pay shipping costs.

Keyword search 'Carbon Engineering'. They're now getting deployment scale funding - this is no longer an R&D project.

Gas @ 2.80 is including taxes. If your converting to electricity (not economical), take the tax out of the equation. Here in Illinois about 60c per gallon. Also you assume in 7 years the price remains the same. Doubtful, it can go up more, or down like in January at 1.95 here. I see Panels now being installed on roofs that are at half life, what will the cost be to remove said panels and re-install when the roof needs replaced. So many variables in that cost of KW. Down south I can see the use of panels but not so much here in Central Illinois.

[Tom Kirkman + 8,860]

On 4/14/2019 at 1:32 PM, Marina Schwarz said:

I risk bursting @Tom Kirkman's $70 bubble but, well, there's talk about $40 for a barrel of Brent. Anyone else having a deja vu? 

You might want to double check your deja vu.

(The technical term for that is "deja revu" if I recall correctly.)

https://www.linkedin.com/feed/update/urn:li:activity:6523419342829383680

 

[William Edwards + 708]

Since I have maintained for many years that $40 in today's dollars is an appropriate long-term average, it follows that a large portion of the time the price will be below that level. So I am on board with your suggestion, Marina. Sorry, Tom.

[William Edwards + 708]

On 4/14/2019 at 6:09 AM, Tom Kirkman said:

No worries, I'm in such a great mood after speaking this weekend that nothing can bring me down for quite a while.

I see no viable reason for $40 Brent any time soon.  Short term price gyrations are mostly just short term attempts by computer algorithms to profit from momentary spikes and drops.

Pay no attention to that computer algorithm behind the curtain.

Have you considered the possibility, Tom, that, instead of a computer algorithm behind the curtain, there is a reasonable assessment, based upon the projection included in the recent Aramco loan prospectus? This document included a cost plus return workup of the major world producing regions. Costs began at $10/B for Aramco , with most reserves producing oil with a 10% return at a cost lower than $40/B. If that assessment is accurate you will need substantial dollar inflation to even reach $70 in current dollars. And a price below $20, in constant dollars, is possible if Aramco and the Middle East producers get price competitive. Data and reason, not wishful thinking.

Edited April 15, 2019 by William Edwards

[Tom Kirkman + 8,860]

3 minutes ago, William Edwards said:

Since I have maintained for many years that $40 in today's dollars is an appropriate long-term average, it follows that a large portion of the time the price will be below that level. So I am on board with your suggestion, Marina. Sorry, Tom.

No worries William.  I totally understand your reasoning, as you have explained very well before.

I still remain biased for $70 oil, as I tend to be more optimistic about the future of oil & gas, and also the the easiest, cheapest oil has already mostly been extracted.  Even the Saudis have been on EOR.  So in my own view, $70 is the new $40.  Granted, I've donned rose tinted glasses for $70 oil, but jeez, something optimistic needs to be constantly said about oil prices due to the neverending beatdown against the Oil & Gas industry in much of the Mainstream Media and by the incessant rantings of the Church of Global Warming and the Keep Oil In The Ground Forever mob.

[wrs + 893]

6 minutes ago, William Edwards said:

Have you considered the possibility, Tom, that, instead of a computer algorithm behind the curtain, there is a reasonable assessment, based upon the projection included in the recent Aramco loan prospectus. This document included a cost plus return workup of the major world producing regions. Costs began at $10/B for Aramco , with most reserves producing oil with a 10% return at a cost lower than $40/B. If that assessment is accurate you will need substantial dollar inflation to even reach $70 in current dollars. And a price below $20, in constant dollars, is possible if Aramco and the Middle East producers get price competitive. Data and reason, not wishful thinking.

The flaw in that analysis is that only a minority of the oil consumed today is produced at those low costs.  The marginal barrels that determine the price are much more costly to produce.  So the result is that the lower cost producers make more money by producing less because they don't drain their reserves as quickly and they get premium pricing.  Why in the world would those producers who can control their output produce at prices which don't maximize their return?

Edited April 15, 2019 by wrs

[William Edwards + 708]

4 minutes ago, Tom Kirkman said:

No worries William.  I totally understand your reasoning, as you have explained very well before.

I still remain biased for $70 oil, as I tend to be more optimistic about the future of oil & gas, and also the the easiest, cheapest oil has already mostly been extracted.  Even the Saudis have been on EOR.  So in my own view, $70 is the new $40.  Granted, I've donned rose tinted glasses for $70 oil, but jeez, something optimistic needs to be constantly said about oil prices due to the neverending beatdown against the Oil & Gas industry in much of the Mainstream Media and by the incessant rantings of the Church of Global Warming and the Keep Oil In The Ground Forever mob.

Optimism is wonderful, Tom. But realism also has its merits.

[Tom Kirkman + 8,860]

1 minute ago, William Edwards said:

Have you considered the possibility, Tom, that, instead of a computer algorithm behind the curtain, there is a reasonable assessment, based upon the projection included in the recent Aramco loan prospectus. This document included a cost plus return workup of the major world producing regions. Costs began at $10/B for Aramco , with most reserves producing oil with a 10% return at a cost lower than $40/B. If that assessment is accurate you will need substantial dollar inflation to even reach $70 in current dollars. And a price below $20, in constant dollars, is possible if Aramco and the Middle East producers get price competitive. Data and reason, not wishful thinking.

Solid reasoning as usual William.

On the other hand, at that magical $70 oil number, all sorts of good things happen.  Let me copy & paste one of the comments I just wrote on LinkedIn in answer to someone's question:

===================

https://www.linkedin.com/feed/update/urn:li:activity:6523419342829383680?commentUrn=urn%3Ali%3Acomment%3A(activity%3A6523419342829383680%2C6523529359314161664)&replyUrn=urn%3Ali%3Acomment%3A(activity%3A6523419342829383680%2C6523537705316507648)

@Hamid Poosti
$90 or $100 oil is simply not sustainable over the long term.  Too high oil prices will choke down oil demand, and start yet another crazy round of price roller coastering.

From what I can observe, $70 oil [Brent] seems to be around the best possible "balanced" price for this year, for the majority of oil producers & the majority of oil consumers.

At $70 oil [Brent] the long-delayed major oil Exploration projects get rekindled, long-overdue maintenance and upgrading projects get taken out of the deep freeze, and global economic trickle-everywhere activity increases.  

"Trickle-down" is a misnomer.

My invented term of "Trickle-everywhere" probably better reflects the massive kick start effects that happen when global oil & gas gets humming again at around $70 oil prices, and oil companies lubricate global industries and global economies by spreading around their free cash flow.

Also, my long term macro views on LNG haven't changed significantly since I wrote about it extensively on Oilpro around 2016. Global LNG will likely start shifting from global oversupply to global undersupply around 2022 or so, with global LNG prices getting more profitable around 2023.

Just my opinion; as always, you are free to disagree.

[Tom Kirkman + 8,860]

Just now, William Edwards said:

Optimism is wonderful, Tom. But realism also has its merits.

Yes I know and I agree with your gentle nudgings, William.

I just happen to be in an absurdly good mood and overflowing with optimism about Oil & Gas in the last few days, after having a blast speaking at an Oil & Gas Seminar this weekend.  It was enormously fun for me to wind up the O&G audience and jolt them to think much differently about O&G resources.

[William Edwards + 708]

14 minutes ago, wrs said:

The flaw in that analysis is that only a minority of the oil consumed today is produced at those low costs.  The marginal barrels that determine the price are much more costly to produce.  So the result is that the lower cost producers make more money by producing less because they don't drain their reserves as quickly and they get premium pricing.  Why in the world would those producers who can control their output produce at prices which don't maximize their return?

Possibly the flaw is your misreading of the basis for the assessment, wrs, and not my  analysis. The numbers presented were not marginal cost barrels, but total cost, including return. And on that basis most of the world's production can be expanded at a price of $40/B. I might also suggest that you take a new look at your idea of the marginal barrel. I submit that the marginal barrel is not the highest cost barrel produced. The highest cost barrel can be the barrel produced by the most ignorant or stubborn producer. The true marginal barrel, the up or down swing barrel, is still the Aramco oil that had an average cost of $3/B last year. That is the reason that the price drops precipitously when the Saudis feel the need to get competitive.

Edited April 15, 2019 by William Edwards

[wrs + 893]

7 minutes ago, William Edwards said:

Possibly the flaw is your misreading of the basis for the assessment, wrs, and not my  analysis. The numbers presented were not marginal cost barrels, but total cost, including return. And on that basis most of the world's production can be expanded at a price of $40/B. I might also suggest that you take a new look at your idea of the marginal barrel. I submit that the marginal barrel is not the highest cost barrel produced. The highest cost barrel can be the barrel produced by the most ignorant or stubborn producer. The true marginal barrel, the up or down swing barrel, is still the Aramco oil that had an average cost of $3/B last year. That is the reason that the price drops precipitously when the Saudis feel the need to get competitive.

Any barrel is the marginal barrel.  Plenty of others claim the Permian is the marginal barrel.  I would say the Canadian oil sands are the marginal barrel because they are all being produced at well below cost and there are 3m/day of them still being sent down here to the US every day.  What do you suppose the POO would be if those barrels weren't on the market?  

The oil from ARAMCO pays a 20% royalty off the top so add that to the $10/bbl.  The taxes on profits from ARAMCO are 50% so add that back into the cost of production because it's paid to the Saudi govt which is the Saudi royals who also collect the royalty.  I don't know why any rational producer would sell their oil far below the market.  The lower for longer strategy employed by OPEC failed miserably as it should have.  If you ask me, they were the ignorant and stubborn producer you refer to.

[William Edwards + 708]

12 minutes ago, wrs said:

Any barrel is the marginal barrel.  Plenty of others claim the Permian is the marginal barrel.  I would say the Canadian oil sands are the marginal barrel because they are all being produced at well below cost and there are 3m/day of them still being sent down here to the US every day.  What do you suppose the POO would be if those barrels weren't on the market?  

The oil from ARAMCO pays a 20% royalty off the top so add that to the $10/bbl.  The taxes on profits from ARAMCO are 50% so add that back into the cost of production because it's paid to the Saudi govt which is the Saudi royals who also collect the royalty.  I don't know why any rational producer would sell their oil far below the market.  The lower for longer strategy employed by OPEC failed miserably as it should have.  If you ask me, they were the ignorant and stubborn producer you refer to.

It is obvious that there is a major difference in our respective understandings of the definition of "marginal barrel", as well as other aspects of our analyses. If you are able to deal with what appears to be a floating definition of a concept as important as the definition of the swing barrel, then I suspect that we will have great difficulty in reaching a meeting of the minds. Let us not overwork that challenge.

[wrs + 893]

16 minutes ago, William Edwards said:

It is obvious that there is a major difference in our respective understandings of the definition of "marginal barrel", as well as other aspects of our analyses. If you are able to deal with what appears to be a floating definition of a concept as important as the definition of the swing barrel, then I suspect that we will have great difficulty in reaching a meeting of the minds. Let us not overwork that challenge.

It's all semantics, the marginal barrel is that which pushes the supply curve past the demand in the market subsequently causing a drop in prices.  That barrel can be produced by any producer, not just the most recent.  That is what I am calling the marginal barrel.  Texas has been producing oil for far longer than KSA, by that definition they would be marginal producers.

[William Edwards + 708]

2 minutes ago, wrs said:

It's all semantics, the marginal barrel is that which pushes the supply curve past the demand in the market subsequently causing a drop in prices.  That barrel can be produced by any producer, not just the most recent.  That is what I am calling the marginal barrel.  Texas has been producing oil for far longer than KSA, by that definition they would be marginal producers.

I agree, Bill. Semantics can be a problem. But, in spite of semantics, reality exists. My definition of swing or marginal barrel is operationally oriented, since that is the element that I believe is in play in the pricing mechanism. I view the marginal barrel as that last quantity of oil needed to complete the total supply picture. Operationally, it can either be added or withdrawn. Therefore, the marginal supplier must be willing and able, on demand, to either increase or decrease production. The Texas RR Commission formerly was in that position, but not recently. Aramco has been in that role since the seventies.

The reason that I adopt a fixed definition of the marginal barrel is because the pricing mechanism reveals that the marginal barrel is the price-setting barrel. Thus that reality is quite significant to the industry. 

[Happy Go Lucky + 25]

5 hours ago, Old-Ruffneck said:

Gas @ 2.80 is including taxes. If your converting to electricity (not economical), take the tax out of the equation. Here in Illinois about 60c per gallon. Also you assume in 7 years the price remains the same. Doubtful, it can go up more, or down like in January at 1.95 here. I see Panels now being installed on roofs that are at half life, what will the cost be to remove said panels and re-install when the roof needs replaced. So many variables in that cost of KW. Down south I can see the use of panels but not so much here in Central Illinois.

"Down south I can see the use of panels but not so much here in Central Illinois."

Yep, can't see use of solar for much of anything above  35° North latitude unless there's a MAJOR break through in battery storage life

Edited April 15, 2019 by Happy Go Lucky
content

[wrs + 893]

2 hours ago, William Edwards said:

I agree, Bill. Semantics can be a problem. But, in spite of semantics, reality exists. My definition of swing or marginal barrel is operationally oriented, since that is the element that I believe is in play in the pricing mechanism. I view the marginal barrel as that last quantity of oil needed to complete the total supply picture. Operationally, it can either be added or withdrawn. Therefore, the marginal supplier must be willing and able, on demand, to either increase or decrease production. The Texas RR Commission formerly was in that position, but not recently. Aramco has been in that role since the seventies.

The reason that I adopt a fixed definition of the marginal barrel is because the pricing mechanism reveals that the marginal barrel is the price-setting barrel. Thus that reality is quite significant to the industry. 

I think we are saying the same thing.  I don't think it really matters who produces the barrels that push supply beyond demand, those are the marginal barrels.  It's impossible to identify them and of course to the extent OPEC can, it is trying to keep supply at or below demand.  The shale production in the US is about 7mmbbl/day I think and Canadian oil sands amount to another 3.5mmbbl/day so there are 10mmbbl/day of oil that is priced on the margin.   If the market didn't have that oil, it would be severely unbalanced and the price might be $150/bbl with the OPEC countries gaining most of the benefit. 

Of course with oil at those prices everyone and their dog wants to drill a well and so investors supply the drillers and more oil appears on the market.  It is precisely during such a pricing period that both the sands and the shale started coming on the market.  The market didn't break until 2014 and it had help with the misguided lower for longer policy that anyone with a brain could see wouldn't accomplish what it was intended to accomplish.  Even MBS can see what he did was stupid, stupid, stupid.  Now the trick is for the market to find the right price that allows the sands and shale to be profitable and keeps oil below $100/bbl.

[William Edwards + 708]

1 hour ago, wrs said:

I think we are saying the same thing.  I don't think it really matters who produces the barrels that push supply beyond demand, those are the marginal barrels.  It's impossible to identify them and of course to the extent OPEC can, it is trying to keep supply at or below demand.  The shale production in the US is about 7mmbbl/day I think and Canadian oil sands amount to another 3.5mmbbl/day so there are 10mmbbl/day of oil that is priced on the margin.   If the market didn't have that oil, it would be severely unbalanced and the price might be $150/bbl with the OPEC countries gaining most of the benefit. 

Of course with oil at those prices everyone and their dog wants to drill a well and so investors supply the drillers and more oil appears on the market.  It is precisely during such a pricing period that both the sands and the shale started coming on the market.  The market didn't break until 2014 and it had help with the misguided lower for longer policy that anyone with a brain could see wouldn't accomplish what it was intended to accomplish.  Even MBS can see what he did was stupid, stupid, stupid.  Now the trick is for the market to find the right price that allows the sands and shale to be profitable and keeps oil below $100/bbl.

Your view seems to suggest that everyone except the Saudis have a right to produce all that they wish, and the Saudis should adjust their production to accommodate others' wishes. May I suggest an alternate way of looking at the situation. From a purely economics standpoint, all of the lowest cost oil should be produced first, followed by increasing cost increments until the needed level of supply is reached. In such a system, the Middle East producers would produce at capacity with Canada being the last increment, if it were needed at all. Since Canada would be the marginal producer in this scenario, then it would raise and lower production levels as its oil was required to balance. If no Canadian oil were needed, except for local consumption, then the next cost-based increment, probably US, would be throttled sufficiently to balance. In such an economics-based case the last production increment might realistically set the price.

But in today's world, the entire industry, and even the consumers, presume that all of the "other", high cost oil somehow deserves to be produced first and the lowest cost oil seems to be the source that should be throttled. Do you see a problem here? And if the Saudis are willing to shut in $3 oil so that Canada can produce $50 oil, then who are the ignorant producers and who are the stubborn ones? And what system, pray tell, assigns an appropriate price. Under the rule that the marginal production sets the price, then should it be $3/B? Are you suggesting that the highest cost producer, the most ignorant or stubborn, gets a price that protects his stubbornness and stupidity? That leads to the real question: Who, in their right mind, could expect an oil price that is high enough to protect the most uneconomical source while criticizing the low cost producer for not "cooperating"?

And one other point -- if 100 million barrels a day of oil can be produced at a cost plus reasonable return for $40-45/B, how can a price higher than that be expected?

One additional point: If the world needs 100 million barrels of oil from dozens of sources, how do you assign which source is the "over-supplier" if the total being pushed at the market is 101 million barrels? I submit that it is as reasonable to suggest that the US or Canada, or any other producer, be cut back as it is to suggest that OPEC be cut back.

[jjj + 26]

8 hours ago, Meredith Poor said:

Gas price where I live: $2.80.

32 KWh per gallon of gasoline x 3 = 96Kwh needed to convert CO2 and water to an equivalent hydrocarbon.

96Kwh / 5 hours per day of sunlight = approximately 20Kw of panels.

2.80 x 2556.75 days in a seven year time span = $7150.

20,000 watts / $7150 = 35 cents per watt.

Depending on where you look, you can get solar panels at 35 to 45 cents per watt (US), 20 cents per watt (China), or free (used panels from damaged installations). 'Free' panels have certain restrictions on use and buyer has to pay shipping costs.

Keyword search 'Carbon Engineering'. They're now getting deployment scale funding - this is no longer an R&D project.

Meredith,

I have never found panels that cheap but let's assume we can. You would need to cover about 1,200 Square Feet of panels to get a gallon of gasoline a day worth's of energy. I use about 5 gallons a day in my household. That would mean 6,000 Square Feet of panels to support my household in transportation alone. Think of the impact that would have to the environment. Basically I would have to cut down all my trees and sterilize 4,000 Square feet of current green around my 2,000 SF house. and this assumes no efficiency loses after the panels.

 

JJJ

[wrs + 893]

11 minutes ago, William Edwards said:

Your view seems to suggest that everyone except the Saudis have a right to produce all that they wish, and the Saudis should adjust their production to accommodate others' wishes. May I suggest an alternate way of looking at the situation. From a purely economics standpoint, all of the lowest cost oil should be produced first, followed by increasing cost increments until the needed level of supply is reached. In such a system, the Middle East producers would produce at capacity with Canada being the last increment, if it were needed at all. Since Canada would be the marginal producer in this scenario, then it would raise and lower production levels as its oil was required to balance. If no Canadian oil were needed, except for local consumption, then the next cost-based increment, probably US, would be throttled sufficiently to balance. In such an economics-based case the last production increment might realistically set the price.

But in today's world, the entire industry, and even the consumers, presume that all of the "other", high cost oil somehow deserves to be produced first and the lowest cost oil seems to be the source that should be throttled. Do you see a problem here? And if the Saudis are willing to shut in $3 oil so that Canada can produce $50 oil, then who are the ignorant producers and who are the stubborn ones? And what system, pray tell, assigns an appropriate price. Under the rule that the marginal production sets the price, then should it be $3/B? Are you suggesting that the highest cost producer, the most ignorant or stubborn, gets a price that protects his stubbornness and stupidity? That leads to the real question: Who, in their right mind, could expect an oil price that is high enough to protect the most uneconomical source while criticizing the low cost producer for not "cooperating"?

And one other point -- if 100 million barrels a day of oil can be produced at a cost plus reasonable return for $40-45/B, how can a price higher than that be expected?

One additional point: If the world needs 100 million barrels of oil from dozens of sources, how do you assign which source is the "over-supplier" if the total being pushed at the market is 101 million barrels? I submit that it is as reasonable to suggest that the US or Canada, or any other producer, be cut back as it is to suggest that OPEC be cut back.

KSA can do what suits it and shooting itself in the foot suited it for a couple of years.  I don't think they want to sell their oil at low prices to keep the ROW happy.  Your economic scenario is about as realistic as the expectations that dotcoms had about brick and mortar back in the 90s.  It's taken 20 years for brick and mortar to see the toll that the web has taken but back then everyone was betting on now.  I think KSA is probably trying to play the longer game and keep more of their oil in the ground for the future.  As I explained, it doesn't make sense for them to sell their oil at the margin since they have such a great profit potential and they need the excess money to stay in power.  Economics is always fouled up by reality.  

I think the bigger thing that is missing in all this analysis you have done is that you assume that oil is fungible and that hasn't been the case since the 30s.  Once the heavier grades started coming from the mideast and Venezuela back in the late 70s and early 80s, the refiners retooled toward heavy oil and blends of heavy and light. The US is producing mostly light oil while OPEC produces mostly heavy oil with Venezuela and Canada producing sludge.  Because it's not all the same and not processed the same way, it is all priced and used differently.  Trying to build a monolithic oil price economic model won't work on a system as complex as the upstream, midstream and downstream businesses are today.  A single price can't encompass that much complexity.  

[William Edwards + 708]

6 minutes ago, wrs said:

KSA can do what suits it and shooting itself in the foot suited it for a couple of years.  I don't think they want to sell their oil at low prices to keep the ROW happy.  Your economic scenario is about as realistic as the expectations that dotcoms had about brick and mortar back in the 90s.  It's taken 20 years for brick and mortar to see the toll that the web has taken but back then everyone was betting on now.  I think KSA is probably trying to play the longer game and keep more of their oil in the ground for the future.  As I explained, it doesn't make sense for them to sell their oil at the margin since they have such a great profit potential and they need the excess money to stay in power.  Economics is always fouled up by reality.  

I think the bigger thing that is missing in all this analysis you have done is that you assume that oil is fungible and that hasn't been the case since the 30s.  Once the heavier grades started coming from the mideast and Venezuela back in the late 70s and early 80s, the refiners retooled toward heavy oil and blends of heavy and light. The US is producing mostly light oil while OPEC produces mostly heavy oil with Venezuela and Canada producing sludge.  Because it's not all the same and not processed the same way, it is all priced and used differently.  Trying to build a monolithic oil price economic model won't work on a system as complex as the upstream, midstream and downstream businesses are today.  A single price can't encompass that much complexity.  

If you think that I suggested that all oi is assigned the same price, our communication has failed. But there is a "Marker" price, set or accepted by the truly marginal producer, from which all other grades are priced by differentials. These differentials change with time and circumstance, as you have suggested. Currently Saudi Light is that marker crude. If Aramco decided to sell to all purchasers at $20/B tomorrow, all true prices would immediately fall into line. 

We have reached the level of diminishing returns. When you find it necessary to advise me that light and heavy crudes are different, then you must be accustomed to conversing with very simple minds. I think that I do not wish to converse at that level.

[wrs + 893]

3 minutes ago, William Edwards said:

If you think that I suggested that all oi is assigned the same price, our communication has failed. But there is a "Marker" price, set or accepted by the truly marginal producer, from which all other grades are priced by differentials. These differentials change with time and circumstance, as you have suggested. Currently Saudi Light is that marker crude. If Aramco decided to sell to all purchasers at $20/B tomorrow, all true prices would immediately fall into line. 

We have reached the level of diminishing returns. When you find it necessary to advise me that light and heavy crudes are different, then you must be accustomed to conversing with very simple minds. I think that I do not wish to converse at that level.

Your communication has failed then because you are the one talking about an OIL PRICE, singular.  I fail to see the value in arguing about hypothetical models that don't begin to address reality either so I will forgo further discussion of this due to the futility thereof.