The squeeze is on. That's real pain you hear in the oil patch. I always buy into the pain, when the fundamentals are with me.
The price of West Texas Intermediate crude oil closed on Friday at its lowest level since November of 2003. February crude fell $1.78, or 5.7%, to settle at $29.42 a barrel on the New York Mercantile Exchange. For the week, prices lost 11.3%.
-RW
What's your take on the fundamentals?
ReplyDeleteThe time to invest in the oil companies won't come until you stop hearing the execs talking about how safe their dividend is. Most of them think this is temporary and haven't yet made the necessary cuts to weather a multi-year period of low (sub-$50) oil prices.
ReplyDeleteWell the North Slope operators in Alaska have just had a second round of major layoffs, they are making the cuts.
ReplyDeleteI seriously doubt it will stay low for the remainder of 2016, there will be a "crisis" somewhere in the middle east. I figure about late July or August.
Yeah, I am seeing it in the unemployment numbers. Maybe as early as May.
DeleteVenezuela and Angola also very unstable.
We're seeing the changes due to rig closures here in Texas too.
DeleteSome of my younger clientele (early/mid 20's) who were making 50-60k and more are now selling the toys they purchased just a few short years ago.
MarketWatch is out with an article profiling Shawn Driscoll of the T. Rowe Price New Era Fund. Driscoll was one who predicted crude's decline into the $30 range. He points to the next decade as the timeframe for a re-balance of supply and demand.
ReplyDeleteLike all of the recent oil prediction articles featuring the so-called experts, this is yet another one that misses the mark. Supply and demand are the limit of what's assessed by the likes of Driscoll. The discussion of the oil price denominator - what oil is expressed in - is nowhere to be found. They assume the stability of the dollar moving forward. No mention of the coming price inflation that's just below the surface, the beating the dollar will take in international exchange, and the possibility of the geopolitical black swans mentioned above.
The low prices of 2003 were a result of Saudi Arabia thanking us for being their proxy by sending our sons and daughters to fight Iraq....they would not send their own progeny. The current low prices are the result of a concerted effort by the Saud family princes to destroy their American competition, especially in the Bakken Fields and the Alberta Patch. They took out a $750 billion line of credit to accomplish this end because low oil prices could not sustain their welfare state. For added measure, they will float a $250 billion IPO on ARAMCO, which will cover their welfare costs for a total of four years. Then watch out. Oil prices will skyrocket and stretch Western economies to the breaking point. Then the Sauds will ask us to send in another proxy army to fight their Shia enemies in Iran. The carrot will be lowered oil prices. That Iraqi carrot cost us several trillion dollars and thousands of lives.
ReplyDeletePaul - but isn't the cure for high prices, just that - high prices? The oil industry is like a behemoth ship that can't turn on a dime. So when skyrocketing oil prices are back it will definitely take some time for E&P companies to pick up rig contractors, then permit, drill, complete, and turn on production. But in the long run, the great leaps forward in efficiency - including pad drilling, longer horizontals (over 2 land sections instead of just 1), multilateral wells (horizontal drilling in multiple formations from a shared vertical), improvements in acid fracs, squeezing additional production from existing wells (such as refrac'ing), and better and more available information from the introduction of big data into the oilfield - will substantially add to production volumes. Plus, I'm confident that the profit incentive, more to be determined technological advancements, and the addition of more skilled petroleum engineers and geologists (who started college programs in the midst of the boom) will suffice for Western economies to not reach the breaking point, however you want to define that.
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