The marginal cost of oil is the amount required to bring on hard-to-access oil only considered viable when other supplies fail to meet demand. It can be viewed as a level below which prices are unlikely to fall. The price at which oil or gas needs to be sold in order to spur enough production to meet demand.

Let’s say a company is currently producing 100 barrels of oil. As the company decides whether to pump
out more oil from its stores, it will weigh whether each additional unit of production will be profitable. Each
unit that is additional to current production is a marginal unit; the cost of producing this unit is known as
the marginal cost, and the price at which it can be sold is the marginal price. What happens at the margins is important because it largely determines the behavior of producers and consumers, thus
shaping the market. This principle holds true for all tradable commodities, including oil.