It's time to ask honestly. The current model of oil companies can be questioned and how much they are winning from the current extractions compared to before (because, if the price fallen or raise, the production cost isn't related closely to the price of the market) can be as well investigated. What were the oil margins when it was at $100? At $80? And now? What's the real cost of extracting a barrel, after all, and isn't the cost more driven by the fact the good is rare, rather than its production cost? But doesn't production cost is linked to the "investigation before opening a new extraction site" cost?
There's currently too much oil. Global production has risen markedly while demand has fallen a bit. Margins in the oil business really aren't all that high. And oil that is pumped out and sits around above ground is basically a liability.
The IMF warns Saudia Arabia may be become bankrupt by 2020 (http://bdnews24.com/economy/2015/10/25/imf-warns-saudi-arabia-may-become-bankrupt-by-2020). Saudi Arabia needs to sell oil at $106 to break even (http://money.cnn.com/2015/10/25/investing/oil-prices-saudi-arabia-cash-opec-middle-east/). Heh, I guess the USA will have to bail out the Saudis. It looks like OPEC's attempt to squash the USA oil and oil shale producers out of business isn't working as well as planned.
The low oil prices are hurting the Saudis too even though the oil wars were supposed to cause problems for U.S oil frackers and the Russians but that strategy didn't work. With a lot of cheap oil on the market, the lower demand for oil and OPEC no longer working together, cost of production doesn't mean much anymore as long as you don't cede ground to rivals.
The production cost varies. You have to remember that the volume of oil produced can still make huge profits on low margins. More expensive drilling can be placed on pause and highly paid workers and oil exploration can be cut to lower the cost of doing business.
Some were speculating months ago that Obama was supposedly working with the Saudis to flood the global oil supplies and drive crude prices down to crush Putin. If that was even actually happening, it doesn't appear to have worked out as intended.
Its hard to believe the Saudi's, always big foreign investors, haven't planned for the drop in the price of oil, it is literally the lifeblood of the country. With their vast current wealth its equally hard to envisage them reduced to comparative poverty. Surely they've had enough time to invest in the rest of the world with their excess riches, to build up a position where they can weather the coming storm in more comfortable conditions.
That's why I say trying to find ways to cut productions costs is maybe the solution here. The supply that happened and the good inventories are doing good (and this, despite the fail of some U.S. parcels that it is no longer sold for oil exploitation, because companies was so far unable to find suitable site) make that price going low and I think that's what U.S. really wanted to get. Why they wanted to get that is less clear to me. Meanwhile I wouldn't count much in wages cut given how hard is the oil work, what you said already happened, since the drilling already stopped on some sites, driving higher the price at first glance. Other Arabians countries did planned that fall and are now diverse in their investment (I think about Qatar, Dubai, etc.). Why Saudi didn't do that? I don't know.
We need to be able to export oil. And the Saudis and other ME nations are largely themselves to blame for producing so much and knocking the price down.
I've heard in the past from Oil company employees I've known that the US is saving all its oil for when the middle-east runs out of it. I can't vouch for the accuracy of it but it would be a great long-term strategy if that was the case. There can't be too many countries who could do without extra income from oil exports in the short-term in order to gain a vital advantage in a half-century or longer, but the mighty USA could manage it. Has anyone else heard this, or are my friends just pulling my leg ?
