Russia facing a declining Ruble and depression. Venezuela and other OPEC members facing huge deficits a possible default. Americans facing bankruptcies in numerous shale plays. All this misery because they refuse to reduce production 2 million barrels per day , out of a 95 million worldwide production. It appears to be no brainer, a simple fix to reduce 2% to prevent such misery.
Permits in Texas are down,
'New drilling permits issued in Texas during November were down by 50% from the total issued in October; however, the November permit total of 1,508 was down modestly from the year-ago level of 1,559 in November 2013, according to Railroad Commission of Texas (RRC) data.'
Problem is, production is still going up. Too much capital in this world. Whether it is cell phones, flat screen TV's, solar panels, etc; they tend to globally overproduce until the margins are gone.
' Last month, Halcon said that it will pull its rigs out from TMS in 2015, which is in stark contrast to its previous plan to double the number of rigs. The move came on the back of nearly 39% drop in WTI crude prices during the last three months to less than $60 a barrel, the lowest level in more than five years. The company will play the role of a spectator at TMS until oil prices rise.
Similarly, earlier this month, Goodrich Petroleum (GDP) , a small oil producer with a market capitalization of less than $250 million and with 306,000 net acres at TMS, slashed its 2015 capital-spending plan for TMS by 37%. ..'
Highest cost producers dropping out. These are new areas and would keep production from growing but not necessarily reduce production.
There would be no surplus oil. Sounds easy. Why they don't is beyond me.
IMO, a year from now, you will read articles about $100+ OIL. There will be concern regarding the stability of some of the 9 member OPEC countries. The default of Venezuelan debt and how that will effect output. Russia, despite promises to keep oil production high will also strain to maintain 2014 levels. Despite growth estimates, USA shale will also drop to 8 million barrels per day.
If we reduce Cap Ex worldwide by 30% then we should get roughly a 30% reduction of 16%, which would equal 4.8%. That would be sufficient to bring us back into equilibrium.
Scrapping of offshore rigs continues at a hectic pace,
About 140 older rigs would need to be scrapped to make way for the new vessels scheduled for delivery by 2020, according to Andrew Cosgrove, an analyst at Bloomberg Intelligence. That pace would double the number scrapped in the previous six years and even eclipse the 123 vessels retired since 2000, according to data compiled by Bloomberg.
SO, HOW MUCH DID 140 OFFSHORE RIGS PRODUCE PER DAY? THE REDUCTIONS WILL NOT BE ALL SHALE RELATED.
This is yet another article this morning,
'Bloomberg’s Olivia Sterns reports that billionaire Harold Hamm plans to slash spending by 41% at his company after a big plunge in oil prices'
By far the biggest cap ex drop I have seen. I just want to hurry up and see a drop in production !!!! If they can continue to produce the san quantity with 30% less cap ex, what does that tell you about the efficiency gains in the industry. IMO, there is no way they can continue 9 million barrels per day with these cap ex reductions.
I had to chuckle when reading this article. It is the perfect example of what can happen in a year. I could never have imagined an article referring to CHK as having a strong balance sheet !!!!
You are correct CHK can NOT survive with sustained $55 oil and $2 Nat Gas. However, before we go bankrupt, about 80% of our competitors will be out of business. This is like the story of the attacking bear, 'We don't need to out run the bear only out run the guy behind us" When 20% go out of business, Nat Gas will spike to $8.
Nice to see it blow through two resistance levels in one day. That is hard with this stock but has no problem going through 4 support levels on a down day.
Everyone positioning for exports. LNG and Mexican exports could equal our own consumption in 5 years.
I have been talking about this for months. When they must sell their shorts to pay the hedges then things will start to go up regardless of supply and demand. IMO, Much of this price decline is speculative shorting to hedge their own hedges, and not associated with supply/demand elasticity. I do not believe we need $55 oil to make producers cut back.
In the next month the short returns will diminish if oil remains stable or increases. First they must contend with a 1 billion buy back and then on the 15th they must pay the .30 dividend.
The volume is huge today. Sure we will surpass 40 million shares.