I agree completely. It just does not make sense to increase domestic rigs at such low oil prices. I believe that the banks use October WTI prices when they revalue E&P company reserves in determining loan covenant status. This year, I doubt that the banks are going to be eagar to loan a lot more to the shale drillers with such low crude prices
Obama unleashed the EPA against coal. Right now, Obama does not want the Keystone pipeline built and he does not want domestic crude shipped overseas
Coal is out of favor and has been a target by Obama's EPA for some time. Some of the big utility companies have been using more natural gas, but a drop from $40+ to $1 seems too much, but when an industry gets out of favor, irrational pricing can be seen. Right now, everyone seems to be afraid that with Chinese oil demand (allegedly) tanking, and supply not not going down, the price of crude will remember low for a long time. I do not believe that, a lot of pundits do
According to most industry analysts, WTI needs to be at $60+ for the shale drillers to be profitable. In fact, some analysts state that it needs to be $70.
The majors (BP,XOM,CVX, Shell, Total, etc) have announced capex cuts over $200 billion. That will definitely reduce future oil production.
OPEC played hardball in 1985 but eventually cut production in 1986 when Russia also agreed to cut. With Iran production coming back into the market, I just don't know what will happen and neither does anyone else. BP believes that low crude prices are with us for a long time. Shell believes that oil prices are going up.
I believe that we will see a lot of crude price swings and one should probably try to swing trade with the price swings
US shale production seems to be tapering off. At the same time OPEC is pumping more oil than it did earlier in 2015. As crude prices continues to decrease, will OPEC agree to cut production if Russia goes along, much as was the case in 1986?
Simultaneously, the oil majors (BP,Exxon, Total, Shell, etc) have stated that they are cutting back on capex budgets. This should eventually cut back on supply. Annual depletion rates are 4-5% and for shale are much greater.
Eventually, crude prices will go up, but we may all be broke by then. This is a difficult market to invest in
Tomorrow, BP plc (ADR) (BP) publishes its second quarter fiscal year 2015 (2QFY15, ended June 30, 2015) financial results, before the opening bell sounds.
The top and bottom line performance will be hampered by the year-long decline in crude oil prices from June last year. Prices of the Brent crude benchmark rolled from a high of $115 per barrel to under $55 per barrel. In response, many energy companies have introduced measures to save money, which have included laying off employees. Another factor influencing this quarter’s results will be the $10 billion charge in settlement of the Deepwater Horizon oil spill.
CVX and XOM report later in the week...also possibly Royal Dutch Shell. This should give us a view of capex for deep water wells
I saw the video.
There is also a good article in today's WSJ about how the E&P companies made a mistake and started hiring back crews and opening shale well rigs after WTI spiked up earlier this year. Now, they are laying off people including scientists, engineers, etc in addition to the drilling crews
This will take its toll and production will decrease
Eventually, the Russians and Saudis will agree to cut production or at least I certainly hope so. Right now, anyone holding oil related stocks is going to see their shares in for a rough ride
Until copper and oil start going back up, this could continue to go down. Right now, with all the negative news about China, commodity rebounds don't seem likely
I already have started to nibble. You need to see evidence of a cut in oil supply before oil prices get bid up by the hedge community
How long will it take for the world's oil supply to be cut enough to get oil prices up?
I believe that the majors have all cut their capex budgets and will most likely announce some further cuts. Demand continues to increase, albeit, slowly. China is still increasing their consumption of oil.
At some point, the oil price will rebound strongly but it is known when
Right now, almost every CNBC pundit is negative on the Chinese stock market and Chinese consumption of oil. The pundits are giving bearish views on all commodities especially oil. This will probably sway some investors to continue to dump all commodity related stocks. Until some of this sentiment changes, I do not see much chance of a rebound in oil service companies.
I would be surprised if the majors (XOM,CVX,etc) do not slash their capex budgets further. At some point, this will affect the supply of oil being produced and the price of oil to go up. Exxon reports this wek and their CEO (Rex Tillerson) is a straight shooter and should discuss his view on oil supply/demand dynamics for 2015/2016
I plan on buying puts to hedge my position
Thx for your response. I will be travelling on business the first few days of August. If you spot something material in any of the CC, please post
I'm old enough to remember the 1986 (I think) oil rout. It was a mess here in Houston. The Saudis eventually cut production and things improved. I've read that SA needs to have crude $90 to have a balanced budget. Right now, their deficits are increasing. Their oil minister is pretty old and if we get a change, it might give his replacement a chance for a chance to cut production when he takes over...who knows. I'm confident that the world will continue to use oil and as companies cut back on exploratory capital budgets, it will eventually force oil prices back up. In the meantime, I am holding a large position in NE and am happy to receive dividends and a little income from covered call writing