Posted on 12/08/2014 5:04:54 AM PST by thackney
Despite last week's bold proclamation, Saudi Arabia cannot keep producing crude oil and drive the price into oblivion if it wants to maintain its social services.
Today, I talked with Regina Mayor, the advisor for the consultant practice at KPMG, who said she doesn't expect this price decline to continue.
"The real break even for a lot of these countries is not what they're finding in extraction and transportation costs," Mayor said. "The real price for oil is what are the expectations of their populace in terms of commitments the government has made in terms of subsidies."
The fear has been that the Organization for the Petroleum Producing Countries (OPEC) would flood the market to reduce the price, sending its U.S. shale competitors out of business. That's especially of concern in North Texas where the shale boom was born and where many companies active in the shale have their headquarters.
While OPEC countries have reserves that can sustain them for a short time, the break-even could be as high as $100 or even $130 a barrel.
"You're going to run out of money very quickly," Mayor said. "Who's going to lend to countries like that because not all those countries will be able to bridge the gap with debt like the US government is able to do."
Overall, this price volatility could be a good thing for the industry, Mayor said.
U.S. companies that stand to lose will be those small oil field service companies and producers that are highly leveraged with debt. Winners could be those companies that planned ahead and could swoop in and purchase a struggling company at a bargain, Mayor said.
"Smaller players might have a far more significant impact and might wash out quicker," she said. "That may not be such a bad thing to settle out the competitive environment and make sure the strong survive."
So expect more merger and acquisition activity, especially in the oil field services industry. The largest M&A transaction was the multi-billion-dollar acquisition of Baker Hughes by Halliburton.
While she doesn't have a crystal ball, Mayor said she doesn't see crude oil prices sinking to $40 a barrel anytime soon. In fact, she predicts that it will correct itself and actually trend back up.
KPMG expert explains why Saudi Arabia can’t sink crude prices into oblivion (Video)
http://www.bizjournals.com/houston/morning_call/2014/12/kpmg-expertexplains-why-saudi-arabia-cant-sink.html?iana=ind_energy
I need an “expert” from KPMG to explain this?
Everyone except the village idiot already know it.
Thing is, Saudi doesn’t control the price of oil any more.
I’ve seen plenty post of FR that the Saudi’s are going to but the “frackers” out of business.
Even worse, some claim they want the US government to pass additional taxes to protect them.
I’ve long suspected that OPEC money is flowing into the “green” movement. I’ve no doubt that they are bankrolling the domestic anti-fracking movement, whether directly or through “advocacy” front groups.
Remember when Obama’s campaign was accepting credit-card transfers without filtering out off-shore sources?
Fear not...renewable green energy will save the day.../ S
I wonder how hard opec laughs when they hear morons like Al Gore babble on...
Fracking Debunks Obama’s ‘We Can’t Drill Our Way Out’
http://news.investors.com/ibd-editorials/120314-728986-fracking-proves-we-can-drill-our-way-to-low-prices-and-independence.htm
Back in 2006, for example, then-Sen. Obama said expanded drilling in the Gulf of Mexico would only “lull the American people into thinking that we can drill our way out of our energy problems.”
When he ran for president in 2008 while gas prices spiked, he mocked John McCain’s call for more drilling. “This is one emergency we can’t drill our way out of,” he said.
After the BP oil spill in 2010, Obama explained that “the reason you never heard me say ‘Drill, baby, drill’ (is) because we can’t drill our way out of the problem.” He went on to claim that “easily accessible oil has already been sucked up out of the ground.”
In 2011, while pushing to end oil industry tax breaks, Obama claimed: “If we’re serious about addressing our energy problems, we’re going to have to do more than drill.”
In 2012, when running for re-election, the president declared: “Even if we drilled every square inch of this country right now, we’re going to be relying on other countries for oil.”
And when he unveiled his “all of the above” energy strategy, Obama lectured the country about how “there’s a problem with a strategy that only relies on drilling, and that is America uses more than 20% of the world’s oil. If we drilled every square inch of this country ... we’d still have only 2% of the world’s known oil reserves.” He added: “We’ve got a math problem here.”
Turns out, it’s Obama who has the math problem.
I wonder what the folks in Mass will think when they get their electric bills next year and they are up another 20+% ?
I wonder if some of them will reconsider having a natural gas line go through their town? Of course, that natural gas will be coming from the horrible fracking in PA that makes their tap water light on fire.
They are now proposing a gas line to travel through southern NH. As opposed to northern Mass. There were already towns like Hollis, NH that voted against it. Therefore, they are moving the proposed route to go north of that border town. It will then continue east and hook up with the main north/south line coming from Mass. Some of the gas will then flow south into Mass.
NH generates 46% of its electricity using natural gas. The balance comes from nuclear(Seabrook), hydro Quebec and other smaller dams in NH, coal and 3-4 wood chip biomass burning plants. However, our percentage of natural gas continues to increase and coal goes down. Yet nobody wants the 30” pipeline to go through their backyard. The other benefit is if supply of gas increases they will expand the smaller distribution lines to feed more residences and get them off of heating oil or propane. Currently, only the major cities in NH have natural gas. Our peak demand for gas is during the heating season. We currently only run short during this time of year. So, most of the gas goes just to make electricity.
Which is a total waste of a resource.
Clowart Piven in action in Saudi Arabia. No wonder our enemies give the talking points to dum liberals
Seems the only math he did understand was that our dolars would support Saudi terrorists on welfare in Saudi Arabia, Tsarnaev connection style.
Canada was barely breaking even at $15 a barrel in the late 90s and everyone was mocking them, no investor would touch them and the Marxist rag The Economist was predicting $10 a barrel in the future...
It hit $10 and even below in the late 90s.
Hafta ask Reggie Love.
The Saudis paid for Harvard for Obama.
'Expert'? I've got quarts of 10-40 in the garage that are older than she is.
Paging captain obvious. All the experts now grasp for relevance.
Im not convinced they have all the oil they say they do,...
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