Posted on 10/14/2014 6:04:38 AM PDT by ckilmer
NEW YORK (Real Money) -- Blame it on the Permian. That's where the oil is flooding into the markets right now. Sure, it is absolutely true that the Bakken and the Eagle Ford shales are responsible for the lion's share of new oil being produced in this country. Sure, the Bakken in North Dakota is amazing with its 1.1 million barrels a day, double what it was when I went there a couple of years ago, and the Eagle Ford is sensational with 1.5 million barrels a day now. But the Permian is 1.7 million barrels and it is conceivable that it could DOUBLE over the next two years. That's right, double.
Last night, I asked the CEO of Magellan Midstream Partners (MMP) , Mike Mears, and he didn't rule it out. Why would Mears know? Because he runs the biggest pipelines out of the Permian. He told me the numbers jump every single day and the more pipe that gets laid, the more we are going to pump. I got the sense that the gating factor is all about exporting, because Magellan is also one of the largest storage companies. He says that while there's storage that could handle most of what's coming out of the Permian right now, if it goes to the levels I am talking about we will have no place to put it and not enough refining capacity to refine it.
Yes, there's that much more coming on line.
I think this decline in oil price is a very real issue for this economy. The boom can be self-fulfilling at this pace. All talk about being continentally sufficient by 2020 is now off the table. I get the sense we could be there within three years at this blistering pace. But without the storage, we will have to cut back on the drilling. And if prices go lower, then the budgets will have to be cut back, too.
In other words, the boom is sowing the seeds of its own demise, being pushed along by the OPEC countries that don't want us to be self-sufficient.
If you take away this boom, you take away the biggest growth opportunities for good jobs. There is so much at risk right now with this price of oil that the selloff can make sense.
Think about it. We have no energy policy. We don't have a fossil-fuel-friendly president who sees what is about to happen: overproduction with no place to put the oil. We can't build the storage capacity, pipelines and refineries to use all the oil we have.
So, what started out as some huge windfall of oil and natural gas is now turning into something that could go very awry with just a few more dollars down for West Texas. We will be knocking the price down ourselves with no outlet for oil. And we will be bringing back unemployment in states that have been the backbone of our recovery.
It is a nightmarish scenario that had been part of a dream come true and it's just a few dollars down from happening, with no government in sight to prevent it.
Sure, it's a worst case scenario. But what exactly in heaven's name do you think the stocks are pricing in?
Yet...................
The saudis are trying to hold onto market share rather than cut production to prop up prices.
Bringing back the gulags will lower labor costs.............;^)
I agree - ISIS is only 5% - 10% of Saudi production at app. 1.2 MMbpd. They are not market movers only followers.
yeah lowering oil prices will hurt Putin. But if prices go lower than 80@ barrel — US oil drilling will be curtailed. That’s not a good thing.
Anything that’s good for the Saudis ends up being bad for us.
GDP growth has been tepid at best in recent years.
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True. But most of what growth there has been in the oil patch.
Actually, this is not so bad for the US as we already have the technoligy and infrastructure in place and our cost of production is mostly below $60 a barrel
Other places are not so lucky
if oil becomes cheap, people won’t support “alternatives”.
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Starting in about 2020 imho electric car prices will come down sufficiently to start a head to head clash with internal combustion engines that will cause a decades long battle between the two systems that will drive down costs and raise efficiencies in undreamed of ways that will cause a pure explosion of wealth around the world.
this is a good thing.
Lower energy costs lowers everything and makes profit for companies. Low cost gas is good for everyone including the producers.
Pray America wakes
Export
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agree.
They are taking over oil fields. They are about to take Baghdad. It is a threat. If they take over the Middle East there goes OPEC. Already OPEC sellers are lowering their prices to compete. Cute as shale oil is, it is not the reason for the price drop. In that, the author is right.
Personally, I think he is wrong about cheap energy being a good thing.
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Cramer is saying that USA could be completely energy independent in 3 years if prices hold up. But if they collapse then the drillers stop drilling and the USA continues to import oil.
I would prefer that the USA became energy independent before prices dropped below 80 @ barrel.
dropping the price of oil is a good thing in so many ways.
1. America is a consumer, so our standard of living will be better
2. Enemies like Russia, Venezuela and Iran that are dependent upon oil income will be forced to draw back
3. Unprofitable renewable schemes will be pressured to be dropped.
Sure, there will be short-time drawbacks on rigs drilling in this country which will impact the oil industry.
However, I have been in the industry long enough to have seen this cycle a number of times. Prices will return. In the meantime, innovation in the industry will continue and it will figure out how to make money at lower prices.
It always does and these down cycles spur some of the best innovation and ideas as it becomes a necessity.
ISIS doesn’t control enough oil to be market moving.
Yet...................
Coincidence is not causality.
Bring back the Gulags? Just staff them with American jailbirds + those who are illegal. It’s a win-win.
But the USA must become energy independent through the use of our own proven resources, not through expensive, unreliable, and unproven “alternatives”.
ISIS is only 5% - 10% of Saudi production at app. 1.2 MMbpd.
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This way overstates ISIS oil production.
Further, many of their refineries in Syria were bombed. What oil they have is mostly in Syria with a little in North West Iraq. Neither places have a lot of oil. When things are going good for ISIS they were making 1-2 million dollars a day. That’s dollars not barrels. Likely that money flow has already slowed considerably.
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