Posted on 12/01/2014 6:44:09 AM PST by thackney
...“In 2016, when OPEC completes this objective of cleaning up the American marginal market, the oil price will start growing again,” said Fedun. “The shale boom is on a par with the dot-com boom. The strong players will remain, the weak ones will vanish.”
No surprise, Friday was a bloodbath for shares of America’s oil and gas independents. Goodrich Petroleum fell 34% on the day, and is off 79% in three months. Swift Energy fell 30%, Penn Virginia and Sanchez Energy down 29%, SandRidge 26%. Some of these, like Swift, are highly leveraged, and there’s even some concern that bidding could dry up for the junk bonds issued in recent years to finance the U.S. oil boom — enough to cause a sudden credit crisis.
There’s plenty of stronger producers, like Devon Energy , Noble Energy and Pioneer Natural Resources have hedged a large portion of their oil production at higher prices. Drillers with land in the sweet spots of shale plays will survive the low price drubbing and may even keep growing output. And even after recent share losses, many frackers trade at solid valuations. Shares in Harold Hamm’s Continental Resources are still worth six times what they were at the nadir of the last oil price plunge in 2009.
Argus Media quoted the Iranian oil minister as saying that squeezing non-Opec production out of the market will take years rather than months.
Indeed there’s a real question as to how much pain OPEC nations and other exporters will be willing and able to endure at the hands of the Saudis. Oil journalist Derek Brower tweeted from Vienna last week that there was lots of anger at the OPEC meetings, with Algerian and Venezuelan oil ministers “furious” that the Saudis refused to cut output....
(Excerpt) Read more at forbes.com ...
When this last happened at the height of the cold war in 1985, it followed a visit by then Vice President George H. W. Bush to Saudi Arabia. Bush convinced the Saudi royal family it was in their best interest to reduce the price of crude oil to regain market share. As a beneficial side effect, Russia would lose a major source of foreign exchange. This followed a major investment by Russia in radar capability, which was largely negated by the publicity of the US then recently developed stealth technology. With reduced foreign exchange, Russia was unable to replicate the stealth technology and the Soviet Union failed. Unfortunately, the economies of the oil producing states, Texas among the most extreme example, were crippled.
This time around, Obama has visited Saudi Arabia twice this year, Bidden has called the Saudi royal family once and the UAE twice. This time it appears the primary objective is to cripple the oil producing states economies, principally Texas, which have been a thorn in Obama’s side. The beneficial side effects of reducing Russia’s foreign exchange, increasing Saudi market share, and reducing the foreign exchange of Iran, along with the positive effect on the economies of states more aligned with Obama, are perhaps just that, side effects.
By the way, crude prices dropped from a intra day high of about $32 in 1985 to a intra day low of $8 in 1986. That is a 75% drop. Prices did not return to $32 on a sustained basis until 2003.
I don’t think the Saudis will be able to defeat the technology of fracked wells.
Once they’re in operation, there’s no disincentive to production.
Really low prices might deter more exploration and drilling, but not existing production.
They won't shut them down at these prices. But they will cut back on the number of new ones they drill to replace the falling production rates.
I believe we will still see production growth at the current prices, but it will be significantly less than the growth we saw at $100.
This is a question I have, and haven’t found a reliable answer to. After a well is drilled and fracked...what is the breakover to continue pumping. It has to be less than the $65 +/- number being thrown around for total production cost.
Isn’t that the critical number...which (combined with the average number of years a well is productive) dictates how low the Saudis have to go?
Remember when Sara Palin said “Drill Baby Drill!” and the collective lefties went nuts? Remember how they said that it would take 10 to 20 years for American drilling to have a effect on oil prices? Now imagine what we could do with
drilling free of the Fed’s regulations.The Saudis fear American oil production.
I can’t find link but it’s in a recent article in Forbes. Break even price for Bakken oil is $42.00
A reliable answer - seems to be difficult to find. I have heard anywhere from $40 to $67. None of this is sourced, so I sure can’t say, with authority, but I’d like to see some credible dollar amount, to advance the discussion.
J Random Freeper correctly pointed out, on another thread, that the oil doesn’t go away, when the price drops, or if a company goes bankrupt. When the price rises, a new outfit will resume drilling, when the bust part of the cycle turns into a boom.
No doubt OPEC is messing with U.S. production, hope it blows up in their faces.
Thanks.
They tried to use ridicule to cover their disgust at the idea that we should use MORE energy instead of less.
Their whole opposition to using fossil fuels is an opposition to energy usage.
Bringing it back to the very base core values, energy is life, and they value death.
But the fracking states are booming.
Texas is going to flip blue in the next few elections anyway, so Obama has a vested interest in keeping them happy.
The real play is against Russia and the house of Saud. However, Russia is not acting like the old Soviet’s. Cut off their source of petrodollars, and they will probably move to reclaim the Ukraine and maybe Finland.
They (the house of Saud and the Russians) view the increase of US oil production as an act of economic war against them. They may decide to retaliate in a more direct manner. For that matter, the drop in oil prices will probably bring an end to the house of Saud.
I rhetorically asked in a prior thread, “Who benefits from this crash?”
Hmmmm....
Did you see this election results? ALL statewide election democrats lost by double digit percentages.
Demographics is destiny.
Go look at the lower two tiers of Texas counties and their percentage of newly amnestied illegals.
And you think that is new?
Needs to go back down to $1.09 a gallon for premium first.
Don’t hold your breath.
The big news is the extra dollars consumers have in their pockets from lower gas prices.
One can postulate, based on the 1985-86 history, that their economic boom will wither as crude oil prices retreat to the point that working over rapidly declining frac wells is no longer attractive. That economic point varies with the debt level of the producer and the characteristics of a particular well. Numbers in the $30 to $50 per barrel range have been publicized, generally from consultants. Some independent producers have already announced cutbacks in drilling and some layoffs of personnel.
I live in Texas. The theory that Texas is going to turn blue is seriously flawed. Wendy Davis, the democratic candidate, lost the governor's race by a larger percentage than even the late polls anticipated. Further, turning blue requires that the rising Texas Hispanic population vote democratic. I have Hispanic grand children and know a large number of Hispanics. The ones I know are hard working, family oriented, Christian, and generally conservative. I detect no tendency for them to vote democratic, rather a strong tendency for them to support conservative values.
Obama has already taken steps to try to weaken Texas; NASA, immigration, drilling permit delays, environmental rules that inequitably penalize Texas to name just a few.
The house of Saud does not view the Russian with favor, as near as I can tell. They certainly did not in 1985-86. Now that the Russians actively support Saudi rival Iran, there is no reason to think the Royal family supports the Russians.
The Royal family is facing some risk from increased unrest in the middle east which might threaten their rule. However, they have significant financial reserves from which to continue paying for social programs to essentially buy support. Probably the threat to their rule is at a manageable risk level, and they can always reverse course if the risks increase to an unacceptable level.
An interesting question, who has been shorting the futures contracts for crude oil? That is the immediate mechanism to drive prices down. I can imagine that the Saudi’s and UAE have used some of their financial reserves to do just exactly that.
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