Why oil won’t fall below $100 a barrel

Many analysts say oil is unlikely to go much lower than $100 a barrel, and it has to do with the rising cost of production.

The overall cost to produce oil has gone up, especially oil from tough to reach places like Canada’s tar sands and the deep water Gulf of Mexico.

These areas require massive investment and materials to produce oil and that expense has risen as the price of commodities surge. And while they represent a small fraction of total worldwide production, they’re important because some analysts believe prices won’t fall below the cost of the most expensive barrel of oil.

Oil from Canada’s tar sands, currently producing about 1.2 million barrels a day, is arguably the most expensive oil in world, and is getting even more expensive.

Last year analysts estimated it cost around $60 a barrel to produce light oil from here. The most recent estimate from the Canadian Association of Petroleum Producers (CAPP) now puts that number at $75 to $90. Comparatively, Saudi Arabian crude is said to cost around $1 a barrel.

For the entire article:

http://money.cnn.com/2008/08/21/news/economy/oil_price_floor/index.htm