The party's over?

"ttyymmnn" (ttyymmnn)
02/12/2016 at 18:41 • Filed to: None

Oil prices surged as much as 12% on Friday after new suggestions that Opec nations were set to cut oil production.

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DISCUSSION (15)

Aaron M - MasoFiST > ttyymmnn
02/12/2016 at 18:46

So that’s why all the stocks started going up again.

mazda616 > ttyymmnn
02/12/2016 at 18:46

I noticed gasoline prices jumped 20 cents overnight here locally. Perhaps my car’s fuel economy will come in handy for once. Although, this cold ass winter is doing all it can to make MPGs terrible.

Sam > ttyymmnn
02/12/2016 at 18:47

So... not much change? I’d like to point out that all the analysts have been constantly predicting oil prices to increase in the future, then when they don’t they say that they’re going to increase at some point in the future again.

Dr. Zoidberg - RIP Oppo > ttyymmnn
02/12/2016 at 18:48

Don’t drive in my spare time much, but booooo!

-this space for rent- > mazda616
02/12/2016 at 19:34

We usually call the 20 cent jump ‘Thursday’. #speedwayeffect

Nymphicus Hollandicus > ttyymmnn
02/12/2016 at 19:34

I hope it doesn’t change much, I hate filling up my stupid Pilot.

Gone > ttyymmnn
02/12/2016 at 19:43

Shouldn’t change much. It’ll go up a little, but not substantially. WTI didn’t even get over $30. Nothing new will get drilled, no DUCs will get popped, no new exploratory work, etc. Not much is economically viable at that figure still. I mean folks still doing that shit, but they’re out of options or maybe found a cheap hole to pop. Ain’t shit left in the Eagle Ford. CapEx down 30% for ‘16 in addition to 50% last year. Land rig count is damn near 500. Sub-500 happened in ‘99, the only other time in the last 50yrs. Offshore is half of last year.

Cushing is almost full. Maybe, or not. Sure it is. Probably. Now you know as much as the analysts do... Regardless, we have around a year or more of excess oil inventory - 1-2% daily excess for a while now. It’ll take awhile to burn through depending on what this “pullback” would be. Regionally dependent, but gas prices shouldn’t go up 10% I wouldn’t think. Summer gas is coming in a few months so you’ll see the shutdown/changeover jump soon. There’s an expectation that the US will burn a shitload of gas this summer, helping clear the glut (but not for awhile).

But no, shouldn’t see a big change. Ya know, unless bombings or an assaination or whatnot...geopolitics!

Oil companies so poor they probably can’t afford to change the sign digits anyhow. /lame joke

Michael Parker > ttyymmnn
02/12/2016 at 20:15

Personally I couldn't care less about gas prices.... EV and all. But I would like to see prices get back to a more natural state for the sake of the suckers who are planning on buying a gas guzzler for the sake of it since gas is so cheap.

Clown Shoe Pilot > Michael Parker
02/13/2016 at 08:37

I’m one of those. I’d really like to go plunk down for a Chevy SS but I know it’s a bad idea in the grand scheme.

davesaddiction @ opposite-lock.com > Gone
02/13/2016 at 09:54

Any personal guess on when commodity prices will actually recover and at what price level oil might stabilize at in the medium term? I’ve heard maybe $40-50 by year end, but everyone seems to be pissing in the wind right now. Is the average lifting cost for Saudi oil actually ~$10 (like I just found an article stating)? I was under the impression that they were starting to use their cash reserves as well at current prices, but willing to do that to continue hurting Russia and U.S. shale producers.

Gone > davesaddiction @ opposite-lock.com
02/13/2016 at 10:39

Everyone is pissing into the wind. Even me, heh.

Pricewise, a few things to consider. Lots of restructuring, M&A, and bankruptcies will happen in the near term. Banks just did a lot of loan reviews (again) for O&G companies and the only companies that are able to restructure are the ones with limited debt and lots of cash on hand. A lot of them are finished and nothing will save them. Secondly, production declines for a lot of frac’d holes that are producing currently should hit soon since they’re not being replaced with new ones (except DUCs and shut-ins). Decline curves are usually in the 18-24 month range. There are 1100 or so DUC wells in the US last I looked, but it does take CapEx to complete them. I would suspect not all of these get completed and a number of shut-ins cost way too much to re-start at this level. All that to say US production should taper soon-ish.

That said, I think $35-40 oil is reasonable in our natural current steady(?l state by EoY. If KSA cuts some - 1-2%? -(or someone else), I think $40-50 is reasonable. If a country fails or one of those war things breaks out, etc that’s a whole other story.

Saudi lifting/transit/production costs are most likely in the teens, maybe $20s. They use a high water cut these days in some fields (decent chunk of various Ghawar fields) but have huge amount knowledge and detailed data their fields and how to minimize cutting. The real number lifting cost is a well kept secret, but you can infer it to an extent. Social costs are likely in the $110-120 range. Which is to say all the cheap fuel, what are essentially dividends to the public, education, social support, etc. That’s what they need to meet their budget, which is why they’ve made budget cuts and are eating through foreign reserves (and why their credit got down rated and will again soon). They want market share and hate Iran (who just got out of sanctions and everyone knew that would happen). Iran is bound to pump a lot of shit - starting ramp up near term over the next few years regardless of actually cost as a giant middle finger to the Kingdom.

I don’t know that US and Russia were the actual “targets” but KSA was well aware that they would be additional victims. I’m almost sure that this drop was more than expected as they wanted oil in the $75/bbl-ish range. Some of the interviews they’ve done support this and their surprise, but like a lot of places that don’t want to be “wrong,” doubling down is the only option - then eat shit and ride it out. Mathematically it’s been $1T+ mistake for OPEC, which is the difference in price since the fall. KSA would be in the 37% share-range instead 41%, but would have hundreds of billions more in revenue, so the joke is kind of on them.

Production costs are mostly in the $35-40 range overall in the US, btw. There is a terrible article on Yahoo about this. Of course, that doesn’t take into account new exploration, drilling new wells, R&D, new equipment, maintanace, etc, etc. Which makes that number more in the $60-70s realistically.

Personally Q4 2017 is my bogie for things being stable, better, and at least 60% of US current O&G profitable. In this market, that’s a real long term forecast. If KSA and Iran push further than their current pissing match and someone shoots first, your guess is as good as mine.

davesaddiction @ opposite-lock.com > Gone
02/13/2016 at 14:01

Great analysis. I just joined an EnCap funded start-up last summer, and we’re largely uninvested, looking at acquisition opportunities. Feeling very fortunate to have a job and at a fairly stable spot in the short term.

Gone > davesaddiction @ opposite-lock.com
02/13/2016 at 16:05

There’s a lot of acquisition opportunities...companies, land, and equipment. Lots of equipment at barely over scrap prices - frac setups at 30% cost, stacked drills everywhere. Land is getting cheaper, but not cheap enough. Lease owners are starting to get desperate though...

Make the right moves and you should so very well.

Gone > davesaddiction @ opposite-lock.com
02/13/2016 at 19:09

For you speculative types, please accept and enjoy this (possible) proxy war that has been delivered to oil’s backyard. Signature (in blood) required!

http://foxtrotalpha.jalopnik.com/saudi-arabia-t…

davesaddiction @ opposite-lock.com > Gone
02/13/2016 at 19:41

Not that surprising, I guess. The moves and posturing on all sides has been getting increasingly aggressive. Hope all with their fingers on the triggers can stop short of starting WWIII...