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The price of Brent crude fell to five-month lows last week, as fears rose about the health of the global economy and the world's largest oil exporter, Saudi Arabia, said it would overproduce in order to drive prices lower. There are solid grounds to belie ve this trend will continue as the crisis in the euro zone deepens and tensions between Iran and the West ease, particularly after the International Atomic Energy Agency confirmed Tuesday that an accord had been reached over nuclear inspections. However, many industry observers say the price of oil is unlikely to fall far below current levels for long, because the cost of producing every last barrel of oil needed to meet demand has risen so high. "Costs are still at a very high level because of the complexity of marginal fields," said Pierre Sigonney, chief economist at French oil company Total SA. "We don't expect oil prices to go much below $100 a barrel." [object Object] The marginal cost of oil production, defined as the cost of pumping the last and most expensive barrel required to satisfy demand, is fundamentally linked to long-term oil prices. If the oil price falls below the marginal cost, there is no incentive to produce that last barrel of oil, so demand will remain unsatisfied until consumers are willing to pay more. The close relationship between the two was demonstrated from 200 1 to 2010, when the average annual price of international oil benchmark Brent crude rose 228%, while analysts at Bernstein Research estimate the marginal production cos t of the world's 50 largest listed oil companies increased 229%. In 2011, the marginal cos t of oil production was $92.26 a barrel for the 50 larg est listed oil and gas companies and will reach $100 a barrel next year if it continues to follow the long-term trend, s aid Bernstein in a research note. Costs are rising because much of the extra oil added to world supply has come from more technically challenging areas such as deep water or the Arctic, Bernstein said. This has led to "a combination of higher material cos ts and reduced productivity per well," it said. To be sure, these 50 companies a ren't the whole picture. A third of world oil production comes from members of the Organization of P etroleum Exporting Countries . In most of those countries , the marginal cost of production is far below $92 a barrel, although OPEC doesn't publish precise f igures. OPEC is pumping crude volumes at three-year highs, and some officials have been talking down oil prices. However, there is a limit to OPEC's largess. Saudi Arabian Oil Minister Ali al-Naimi said he wants to see a price fall to $100 a barrel, which is higher than mos t consumers would like. If the oil price shows signs of falling significantly lower than that, "we would expect OPEC to start to trim output," to support it, said analysts at Barclays in a research note. The closing price of Brent in London on Tuesday was $108.41, down 40 cents, or 0.4% Outside OPEC, virtually all oil-supply growth is coming from one area: shale oil deposits This copy is for your personal, noncommercial use only . To order presentationready copies for distribution to your colleagues, clients or customers visit http://www.djreprints.com. http://www.wsj.com/articles/SB10001424052702303610504577418081 105218276 COMMODITIES Oil Price Likely to Stay Buoyed by Marginal Costs May 22, 2012 4:16 p.m. ET By JAMES HERRON 11/14/2016 Oil Price Likely to Stay Buoyed by Marginal Costs WSJ http://www.wsj.com/articles/SB10001424052702303610504577418081 105218276 2/2 in the Bakken formation of North Dakota. New technology called hydraulic fracturing has released oil that previously was trapped in impermeable rock, allowing production there to quadruple in four years to 575 ,490 barrels a day in March, according to preliminary state data. However, it isn't making a big dent in international prices because getting it to markets outside the U.S. Midwest has been difficult. The speed of the boom means there aren't enough pipelines , and the oil has to be shipped expensively by train, said Eurasia Group analy st Nitzan Goldberger. As production has increased, "rail transport cos ts have tripled over the last 2 years because of rail-car shortag e," she said. Labor and equipment shortag es, and tighter environmental regulations , also have raised drilling costs, Ms. Goldberger said. An average Bakken well's costs have increased to $10 million in 2011, up from about $6 million in 2010, she said. The effect of the cost inflation can be seen in the price of Bakken crude, which sold at a discount of about $30 a barrel to U.S. crude benchmark, West Texas Intermediate, in the last four months , but has traded at a premium to WTI this month, Ms . Goldberger said.