Oil Prices

[greengiraffe]

Oil price dips on Saudi Arabia price cut
DOW JONES DECEMBER 05, 2014 8:06AM

THE global oil benchmark slid to a fresh more-than-four-year low after Saudi Arabia cut the price of its oil in the US, reinforcing concerns that the kingdom is more concerned with maintaining market share than raising prices.

Oil prices have slumped for months as global supply growth, particularly from the US, has outpaced demand. The Organisation of the Petroleum Exporting Countries, of which Saudi Arabia is the biggest producer, decided last week to keep its production quota steady. The cartel has lowered production to raise prices in the past, and its decision to maintain its output target sent prices tumbling.

State-run oil company Saudi Aramco lowered the January prices for its oil in the US by between US10c and US90c a barrel. The company also lowered its prices to Asia and raised them for Northwest Europe and the Mediterranean.

“The Saudis are making it very clear that they’re going to do whatever it takes to maintain market share,” Phil Flynn, analyst at the Price Futures Group in Chicago, said. “If it means taking prices to $US60 a barrel or $US50 a barrel, they’re prepared to do whatever it takes.”

Brent, the global benchmark, slid US28c, or 0.4 per cent, to $US69.64 a barrel on ICE Futures Europe, the lowest settlement since May 25, 2010.

US-traded light, sweet oil for January delivery fell US57c, or 0.9 per cent, to $US66.81 a barrel on the New York Mercantile Exchange.

Saudi Arabia now believes oil prices could stabilise at around $US60 a barrel, a level both it and other Gulf producers believe they could withstand, according to people familiar with the situation. That suggests the de facto OPEC leader won’t push for supply cuts in the near term, even if oil prices fall further.

Another Saudi price cut to the US is “tantamount to a declaration of war to US shale oil producers, in view of the significant decline in the price of the benchmark [US oil],” Commerzbank said in a note. “US shale oil producers already find themselves confronted with very low prices.”

US oil production has soared above 9 million barrels a day for the first time in decades due to new technologies enabling producers to access supplies trapped in shale oil fields. The US Energy Information Administration said yesterday that the country’s proven reserves of crude oil and condensate — the resources that are recoverable with current technology and prices — rose to 36.5 billion barrels in 2013, the highest level since 1974.

However, prices have fallen in recent months to levels that could threaten the viability of shale production. Some companies have already reduced capital expenditure plans for next year.

[HitandRun]

Another good article from Reuters:

A Matter of Time Before Actual Production is Impacted?

[value:search]

According to the International Energy Agency (IEA) annual Medium-Term Oil Market Report (MTOMR) released on May 14, 2013 and re-published by University of California Santa Barbara Department of Geography, supply shock created by a surge in North American oil production will be as transformative to the market over the next five years as was the rise of Chinese demand over the last 15 years. The shift will not only cause oil companies to overhaul their global investment strategies, but also reshape the way oil is transported, stored and refined...

The MTOMR forecasts North American supply to grow by 3.9 million barrels per day (mb/d) from 2012 to 2018, or nearly two-thirds of total forecast non-OPEC supply growth of 6 mb/d. World liquid production capacity is expected to grow by 8.4 mb/d – significantly faster than demand – which is projected to expand by 6.9 mb/d. Global refining capacity will post even steeper growth, surging by 9.5 mb/d, led by China and the Middle East.

With the commencement of major downward move for the oil prices only recently, this might be a disruptive structural change to the Oil & Gas industry and can be expected to last for at least next 3~4 years.

As such, personally I am of the view that the possibility of share prices of companies involved with oil and gas production (such as Sembcorp Marine, Keppel Corp, Ezra, etc) to catapult up to its heyday will likely be very very SLIM... they will more likely to slide lower and lower each day if the report is giving the full picture of the global oil supply and demand situation!

[Boon]

Shale oil In a bind

Will falling oil prices curb America’s shale boom?

Dec 6th 2014 | LINDSAY, OKLAHOMA

http://www.economist.com/news/finance-an...-boom-bind

________________________________________________________________________________________________________________

How far do oil prices have to fall to throttle the US shale boom?

by Brad Plumer on December 3, 2014

http://www.vox.com/2014/12/3/7327147/oil...even-shale

[BlackCat]

I think that short term, oil prices will go lower as everyone increases production. US Companies have to drill more oil to pay off debt, and retain their leases. OPEC and Russia need to sell more oil volume to balance their budgets. And no one knows what the cash cost curve of US Shale production is - somewhere between $40 and $80. Oil prices may have to be a lot lower to stop them producing.

But it can't last too long. For individual shale wells, production declines rapidly in the first two years. Maintaining or increasing production means drilling new wells. The Saudis need $100 oil to balance their budget - they can use their reserves now, but not forever.

Some time - we don't know when - US shale companies will be pushed out of business, and oil will rise again. Long term I think it will be capped at $100, as they can always start producing again.

How would we make money off this? The usual strategy for value investors is to buy the cheapest producers who are always profitable, and wait for prices to recover. But Saudi Aramco isn't listed. And I wouldn't touch Gazprom. What else can we do?

- Try searching for low cost shale producers, that are profitable at $30-$40. This is a very technical subject.
- Are there any parts of the oil production process (from extraction, servicing, transportation, to refining) that have sustainable competitive advantages? Avoid deep-water.

Any other ideas?

[Boon]

Interesting views indeed !
________________________________________________________________________________________________________________
Opinion: Plunging oil prices will starve the world of its economic fuel

By Chris Martenson

Published: Dec 5, 2014

- Low prices mean no new oil, and no new oil means no growth
- The days of rapid economic growth are behind us because the days of cheap oil are behind us.
- If oil prices do not recover and quickly, the U.S. shale miracle will rapidly turn into a shale bust.
________________________________________________________________________________________________________________
The world economy is slowing down and the authorities are worried.

Besides the official gross domestic product statistics, we have further confirmation of this slowdown from the four big commodities associated with growth; oil CLF5, -1.77% (-40% from June 2014), coal (-52% from peak in 2010), copper (-14.4% in 2014), and iron ore (-41% year-to-date 2014).

Japan, Italy, and Greece are all in recession. China is slowing down according to its official statistics, and even more according to the whispers.

Germany, France and the Netherlands are all at stall speed.

The U.S. is, according to the Commerce Department, doing just great at nearly 4% growth, but you wouldn’t know that from either the quality of the new jobs being created (which is low) or consumer spending (also low).

The worry, as always, has nothing to do with the central banks’ concern for you, your job, your children, wealth equality, or the future, and everything to do with the simple fact that the stability of the banking system absolutely depends on a steady stream of new loans being created.

The core of the problem is that we have a monetary system that is either expanding or collapsing. It has no steady state.

In 2008 and 2009, net credit creation was only slightly negative, but that was enough to very nearly cause the entire system of money and banking in the developed world to collapse.

Either money and credit are expanding and the banks are relatively happy or the banks are collapsing and demanding taxpayer bailouts. It’s really that stark.

Now after the most heroic run of interest rates forced to zero (ZIRP) and below (NIRP in Europe) and the grandest experiment with money printing in global history, credit growth is somewhat back on track but not enough to ease the bankers’ worries.

So they continue to pump, and jawbone, and panic at every slight downturn in wildly inflated financial asset prices because those are their only major successes in this drama.

The actual economy, the one that lives on Main Street, never really recovered, at least not compared to past recoveries. Growth, jobs and incomes all were anemic compared to prior recoveries. Capital expenditures by corporations were all but dead in the water throughout the “recovery.”

And this brings us to the collapse in oil prices.

Our view here at Peak Prosperity is that the days of rapid economic growth are behind us because the days of cheap oil are behind us.

Oil fuels the engine of growth and the world has spent $2.5 trillion over the past nine years chasing more oil and yet is producing roughly the same amount of oil as it was before it spent all that money.

As Jeremy Grantham put it in his latest quarterly newsletter:

“As a sign of the immediacy of this problem, we have never spent more money developing new oil supplies than we did last year (nearly $700 billion) nor, despite U.S. fracking, found less — replacing in the last 12 months only 4½ months’ worth of current production! Clearly, the writing is on the wall.”

Unless investment in oil production really accelerates from here, new production will be swamped by existing declines.

But with oil down some 40% since June, new oil drill programs are being scrapped left and right.

New drill permits in the U.S. shale plays were down 40% in November compared to October and for good reason: most of the plays are uneconomical at current prices:

The bottom line, though, is that without growth in oil supplies robust economic growth is impossible to achieve.

If oil prices do not recover and quickly, the U.S. shale miracle will rapidly turn into a shale bust. The decline rates on these wells are ferocious. With that loss of production will go the entire narrative that says that peak oil is somewhere off in the distant future and that we can safely ignore it for now.

Worse, global oil projects are now on hold and those potential future supplies have been pushed out further waiting for higher oil prices.

No new oil means no new economic growth. It’s as simple as that.

This calls into question the sky-high valuations we currently see for stocks and bonds. The operative question being, what is the value of these stocks and bonds in a world without growth?

To me the answer is simple; a lot less than they currently are.

So the central banks are worried that their efforts to ignite new borrowing are not working, but I am worried that the bloated asset prices that were a product of this quest are going to run straight into the reality of diminished oil output.

In short, my worry is that we are now well past the point where the next financial correction can be avoided. It’s going to hurt.

The central banks have failed, perhaps honestly and with good intentions, but they have failed nonetheless. All because they were peering out just one of several portholes and thought they understood the world.

Chris Martenson is an economist and futurist who co-founded the PeakProsperity.com blog.

http://www.marketwatch.com/story/plungin...2014-12-05

[corydorus]

We already have new oil which is why price comes down. What change is that there is more competitors supplying which is good.
So i am kind of confuse with the article.

[specuvestor]

According to the International Energy Agency (IEA) annual Medium-Term Oil Market Report (MTOMR) released on May 14, 2013 and re-published by University of California Santa Barbara Department of Geography, supply shock created by a surge in North American oil production will be as transformative to the market over the next five years as was the rise of Chinese demand over the last 15 years. The shift will not only cause oil companies to overhaul their global investment strategies, but also reshape the way oil is transported, stored and refined...

The MTOMR forecasts North American supply to grow by 3.9 million barrels per day (mb/d) from 2012 to 2018, or nearly two-thirds of total forecast non-OPEC supply growth of 6 mb/d. World liquid production capacity is expected to grow by 8.4 mb/d – significantly faster than demand – which is projected to expand by 6.9 mb/d. Global refining capacity will post even steeper growth, surging by 9.5 mb/d, led by China and the Middle East.

With the commencement of major downward move for the oil prices only recently, this might be a disruptive structural change to the Oil & Gas industry and can be expected to last for at least next 3~4 years.

As such, personally I am of the view that the possibility of share prices of companies involved with oil and gas production (such as Sembcorp Marine, Keppel Corp, Ezra, etc) to catapult up to its heyday will likely be very very SLIM... they will more likely to slide lower and lower each day if the report is giving the full picture of the global oil supply and demand situation!

We had already discussed about shale more than a year ago when these reports were coming out. More importantly the physical markets and prices were reacting yet there were still skeptics on shale

http://www.valuebuddies.com/thread-5526-...l#pid91168

I doubt Saudi or OPEC suddenly just woke up on the emergence of shale. What has changed since then was Russia/ Ukraine

Honestly we are no longer looking at emergence of shale anymore. We are looking at the bust of shale. No doubt there will be survivals but it's gonna be pretty ugly. Like i posted prior in this thread, they are the unfortunate collateral damage

http://www.valuebuddies.com/thread-5541-...#pid100091

[opmi]

I think we are seeing the bust of the commodity complex. Well, they had it good for 10+ years.


Sent from my iPhone using Tapatalki

[Art or Science]

Dated but nonetheless quite a good read I think..

http://www.forbes.com/sites/jessecolombo...or-a-bust/