Oil prices

[woodgeek]

Its a complex story. I was on the fence re tight oil, but I have been increasingly convinced by the skeptics over the last few months. My reasoning (1) the major oil cos have not gotten into the business....only debt-funded independent operators...and I figure the majors know the business better than anyone, and aren't shy about drilling holes. (2) we now have a lot of data about actual field resources and depletion rates in these fields. (3) Despite oil being at $100/barrel for the last several years, the tight oil folks are as a group still underwater debt-wise.

To me, low oil prices look like a big boost for the US economy and balance of trade (and sectors like airlines, auto manufacturers, etc) and a total bloodbath for the (oil) frackers. I would bet against the price staying low for an extended period (i.e. years).

The ace in the hole is that the frackers have been drilling and capping a lot of wells....spend the easy money drilling while they had access to it (because the oil price was high), they can always activate some capped wells to maintain cash flow as existing wells deplete.

After years of being boring, interesting times indeed.

Here is a long report.... (broken link removed to http://shalebubble.org/drilling-deeper/)

Bottom line....they said the EIA projections many have been taking as gospel used pretty rosy projections on existing shale plays and assumed the currently undeveloped plays would have similar productivity. These ideas do not appear to be supported by the geology.

 

[btuser]

Lll

Yeah, in a battle of the Saudis versus the over-leveraged frackers, who do you think will go belly up first?

My guess is the Saudis will buy the junk bonds to keep the debt bomb from going off (and killing the economy which will only lower oil prices further). Payback will be Obama vetoing the Keystone pipeline. Or the feds will classify it as "systemic risk".

Lots of people will go broke and drilling will slow down, but I think the cat is out of the bag.

 

[woodgeek]

@_@

I'll believe about the bagged cat when I see it in the funny papers, rather than the current coverage that portrays OPEC as a bunch of Keystone Kops struggling to maintain high prices in the face of the American Oil Juggernaut.

LOL.

 

[vinny11950]

http://www.bloomberg.com/news/2014-...ressure-oil-s-weakest-from-iran-to-shale.html

good article on Bloomberg on who is positioned for $60 barrel oil. on the fracking front, the established and most experienced players who have wells already drilled can make money down to the low $40s. but the smaller players trying out new fields, they need the higher prices. it sounds like if the Saudis really want to slow the fracking crowd they are going to have to keep prices down for a few years.

is this doable?

it depends on economic activity in the rest of the world, especially China. being that the world economy is getting worse, two years of low oil demand is not out of the question. the Saudis probably see this as their best chance to inflict pain on the people harming their prices.

funny how looking at oil stories on this browser now has an Ad on this page asking me to "Invest in Oil and Gas Wells."

 

[Doug MacIVER]

enjoy the law of supply and demand as long as it lasts. i'll be down $500- 800 on heating oil the year. then right away you start hearing about the gas tax. hey, we need to repair and keep keep the roads. mass gas tax $.24/gal, $.184 feds (in mass we've got additional income from the pike and Tobin bridge). would love to see in depth accounting of where that really goes. will see it go up and I believe real quick. of course the tax increase will help in decreasing demand and making you forget about that road trip.

 

[vinny11950]

enjoy the law of supply and demand as long as it lasts. i'll be down $500- 800 on heating oil the year. then right away you start hearing about the gas tax. hey, we need to repair and keep keep the roads. mass gas tax $.24/gal, $.184 feds (in mass we've got additional income from the pike and Tobin bridge). would love to see in depth accounting of where that really goes. will see it go up and I believe real quick. of course the tax increase will help in decreasing demand and making you forget about that road trip.

I see train trips in your future, Doug. Maybe that high speed train between San Fran and LA that they are dreaming of building.

 

[Doug MacIVER]

I see train trips in your future, Doug. Maybe that high speed train between San Fran and LA that they are dreaming of building.

always took the train bos-nyc. never have been on a plane for that trip, the sf-la train sounds like a good one.

 

[woodgeek]

without comment.

http://www.zerohedge.com/news/2014-09-03/god-crude-oil-trading-goes-all-crude-150-bet

 

[Doug MacIVER]

the only benefactors in general are we the consumer, the producers are having fits. they'll adjust or do what they have to reverse the pricing , the refiners and sellers are all in a fixed position.

aside from that I'm enjoying it. I've even stopped swearing when my burner kicks in for mom inlaw apartment.

 

[firefighterjake]

All I know is anything that helps bring down the price of oil and gas is a good thing . . . just bought 100 gallons of heating oil . . . egads . . . a little less than $300 which was about half of my tank's capacity. I cannot imagine still paying for heating oil . . . even though we were not using an excessive amount (600 gallons in the last year that we were heating with oil exclusively.)

 

[woodgeek]

One possibility here is higher natural gas and propane prices, but only if oil prices stay low for a year or two. Both are 'side products' on many fracked wells. Drillers are going after the high value liquid oil, and selling these lighter products on the side (or in places like N Dakota, just flaring the gas). If a significant fraction of the fracked wells in service see reduced output (due to no $$ for drilling replacement wells) or because they are shut in, then we will likely see wholesale NG prices start to bump up, perhaps significantly.

Of course, retail prices in some markets are so much higher, a bump in the residential wholesale price might not be that noticeable.

Moreover, since our PA shales are more gas than oil...this would be a pick-me-up for PA.

 

[Doug MacIVER]

One possibility here is higher natural gas and propane prices, but only if oil prices stay low for a year or two. Both are 'side products' on many fracked wells. Drillers are going after the high value liquid oil, and selling these lighter products on the side (or in places like N Dakota, just flaring the gas). If a significant fraction of the fracked wells in service see reduced output (due to no $$ for drilling replacement wells) or because they are shut in, then we will likely see wholesale NG prices start to bump up, perhaps significantly.

Of course, retail prices in some markets are so much higher, a bump in the residential wholesale price might not be that noticeable.

Moreover, since our PA shales are more gas than oil...this would be a pick-me-up for PA.

Dec 1st tomorrow? hefty start on the annual drawdown. ahead of last year, so how bad the cold goes so will the market. like RE storage not the available source is the problem. .can't deliver enough to store against the draw.http://ir.eia.gov/ngs/ngs.html

 

[woodgeek]

Seems you guys need to lay some pipe up there.

 

[Doug MacIVER]

almost looks like an agw chart?(sarc) let's see if we can bring up the Pa. hockey stick?!?

have a day

 

[woodgeek]

Come and get it.

PA seems to be using about 1/3 of its production.

 

[Doug MacIVER]

Come and get it.

View attachment 146184

PA seems to be using about 1/3 of its production.

dr. mann is at penn st. that must be where he found the hockey stick.

 

[vinny11950]

So oil is now below $60 a barrel and heading lower according to most analysts. Without a Saudi cut in production, some even expect $45 a barrel.

They are really putting the screws to frackers and smaller oil producing countries that need higher prices. I think they have two main reasons for this:

1) slow / stop the shale producers and drive the smaller and less financially healthy producers out. Already they are talking about buying junk debt from the frackers so they have rights. I wonder if the Saudis (and their partners) would do this with their billions and own the assets out of bankruptcy. They could then sit on them and wait for higher prices down the road.

2) Iran. I think they want to force Iran to make a nuclear deal with the west. The sanctions and low oil prices are really straining the Iranian government and this is the only tool the Saudis have to use.

 

[CaptSpiff]

So oil is now below $60 a barrel and heading lower according to most analysts. Without a Saudi cut in production, some even expect $45 a barrel.

They are really putting the screws to frackers and smaller oil producing countries that need higher prices. I think they have two main reasons for this:

1) slow / stop the shale producers and drive the smaller and less financially healthy producers out. Already they are talking about buying junk debt from the frackers so they have rights. I wonder if the Saudis (and their partners) would do this with their billions and own the assets out of bankruptcy. They could then sit on them and wait for higher prices down the road.

2) Iran. I think they want to force Iran to make a nuclear deal with the west. The sanctions and low oil prices are really straining the Iranian government and this is the only tool the Saudis have to use.

To your point #1: I noticed the "Big Oil" companies have largely stood on the sidelines while the "wildcatters" went into shale heavily leveraged. I'm thinking "Big Oil" will likely come out owning those assets for pennies on the dollar.

Keeping in the season, and the novel a Christmas Carol, I'm thinking of Marley & Scooge sitting at the end of the table and Fezziwig with his head hung low.

As to your second point: Well pondered. I had not seen good cause for the Saudis to so aggressively follow this line, but you may have revealed the secret. The Saudis really do hate the Iranians. War costs money and this may be cheap for the Saudis.

 

[BrotherBart]

Exxon buying XTO for 31 billion wasn't exactly standing on the sidelines.

 

[vinny11950]

Exxon buying XTO for 31 billion wasn't exactly standing on the sidelines.

They are probably kicking themselves..... Not!

Seriously, wasn't this deal more about natural gas?

 

[BrotherBart]

It was done to get their leases, reserves and fracking expertise for gas as well as oil. As an Exxon shareholder, at the time and to this day I think it is the biggest mistake they have ever made.

Well, at least since they hired Hazelwood to drive the boat.

 

[begreen]

Oil can go a lot lower and historically has had other precipitous price drops. Last one was $35 in April '09.

 

[BrotherBart]

Interesting thing with this one is that for all practical purposes, OPEC is gone. After the last attempt to agree on price failed they are toast. The member countries are cutting each other's throats to pay their bills.

 

[btuser]

Its an interesting time for sure. If I was china I'd buy Venezuela for cheap.

 

[bubbasdad]

To your point #1: I noticed the "Big Oil" companies have largely stood on the sidelines while the "wildcatters" went into shale heavily leveraged. I'm thinking "Big Oil" will likely come out owning those assets for pennies on the dollar.

Keeping in the season, and the novel a Christmas Carol, I'm thinking of Marley & Scooge sitting at the end of the table and Fezziwig with his head hung low.

As to your second point: Well pondered. I had not seen good cause for the Saudis to so aggressively follow this line, but you may have revealed the secret. The Saudis really do hate the Iranians. War costs money and this may be cheap for the Saudis.

Economic war might be the best kind. The Saudis can stop at anytime, and might be able to do it forever.