Generally speaking, it’s much better to buy commodities when they are trading below their marginal cost of production. This is where supply destruction takes place.
However, this figure is a bit of a moving target: input costs fluctuate; technology improves; and costs vary by location.
In 2011, the marginal cost of production for oil was $92.26 for the 50 largest listed oil and gas companies, according to the Wall Street Journal. This will climb to $100 a barrel in 2012.
Other factors need to be considered; for example, while Saudi Arabia’s cost of production is low, the House of Saud need to keep prices above $80 to fund their social programs. We can conclude OPEC action will likely come in around this figure.
You can find a similar chart for the marginal cost of natural gas in this post.
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