Oil prices

[PhiAlpha]

This is very true. An old school style of running a business would do this country a world of good.

Fun thing is short term profitability wasn't even that much of a concern. With everyone thinking Peak Oil had happened, and that it was impossible to over saturate the market in crude. The mania part of the cycle began. Many companies have been so over leveraged they haven't been producing profits in the last few years because they have been borrowing so much money to increase drilling as fast a possible. We are now entering the Panic phase. Whether we will see a full Crash.. that remains to be seen.

I think Oklahoma will be ok. Large layoffs I wouldn't be surprised from all the big firms. There wasn't a lot of over building real estate wise, so I think when oil prices rise, and correct themselves to $60-80 a barrel, things will pick up where they left off. Houston in particular might see a pretty step local recession. The shear amount of inventory under construction down there from office, industrial, and multifamily is mind blowing - and 70% of it is oil related. If oil prices can recover by summer I don't think much will be felt anyone. However, a lot of the oil investors and business operators are taking out new hedges for 24 - 32 months at $40 a barrel. Who knows what will happen though.

There is no reason to think there will be large layoffs at ALL the large oil and gas companies and to say such right now is going way overboard. There weren't really any mass layoffs in 2008-2009, just mainly hiring freezes, and oil went into the low $30s. There may be layoffs at a few of them, like Sandridge and Chaparral, who are overstaffed, heavily in debt, and really hurting right now, but for the most part, they have all been operating fairly lean since 2009-2010. One exception was CHK, but that took care of itself in 2013. Most of them are also hedged though the majority of 2015 and some into 2016. As I've said before, the service companies are another story, but most of the full time positions at the large E&P and midstream companies will be safe for quite a while.

[LandArchPoke]

There is no reason to think there will be large layoffs at ALL the large oil and gas companies and to say such right now is going way overboard. There weren't really any mass layoffs in 2008-2009, just mainly hiring freezes, and oil went into the low $30s. There may be layoffs at a few of them, like Sandridge and Chaparral, who are overstaffed, heavily in debt, and really hurting right now, but for the most part, they have all been operating fairly lean since 2009-2010. One exception was CHK, but that took care of itself in 2013. Most of them are also hedged though the majority of 2015 and some into 2016. As I've said before, the service companies are another story, but most of the full time positions at the large E&P and midstream companies will be safe for quite a while.

Wasn't CHK's reorganization to diversify into oil though? Service companies are being hammered at the moment. Some around here have a few months of back log, but once that's gone they'll have to lay off people. Fieldworkers is where it will be seen the most, and is already happening. Some 2,000 have been given pink slips so far this week in Texas alone (still looking for the link to this article). Civeo alone announced 1,000 layoffs and US Steel almost 800.

Here's a few links of the hundreds of stories that have been posted since the end of Dec.

Top US Oil States Are Taking A Hit From Plunging Crude Prices - Business Insider
Crude fallout: Oil housing company slashes jobs - Dec. 30, 2014
U.S. Steel to lay off more than 700 due to falling oil prices | Pittsburgh Post-Gazette
Hundreds with oil company get layoff notices | Business News | Bakersfield Now - News, Weather and Sports
Plunging oil prices could lead to layoffs in Colorado | FOX31 Denver
Low Prices Lead To Layoffs In The Oil Patch
Layoffs Loom In Canada's Alberta Oil Patch

Whether this makes a large impact on the high wage engineers and management, I really don't know. It will have a fairly big impact on our economy this year at the very least. At the end of the day, this is oil prices. Tomorrow we could have some event that could cause oil to go back to $100 a barrel.... you just never know what will happen. Signs are pointing to a few bad years for energy states.

[PhiAlpha]

Wasn't CHK's reorganization to diversify into oil though? Service companies are being hammered at the moment. Some around here have a few months of back log, but once that's gone they'll have to lay off people. Fieldworkers is where it will be seen the most, and is already happening. Some 2,000 have been given pink slips so far this week in Texas alone (still looking for the link to this article). Civeo alone announced 1,000 layoffs and US Steel almost 800.

Here's a few links of the hundreds of stories that have been posted since the end of Dec.

Top US Oil States Are Taking A Hit From Plunging Crude Prices - Business Insider
Crude fallout: Oil housing company slashes jobs - Dec. 30, 2014
U.S. Steel to lay off more than 700 due to falling oil prices | Pittsburgh Post-Gazette
Hundreds with oil company get layoff notices | Business News | Bakersfield Now - News, Weather and Sports
Plunging oil prices could lead to layoffs in Colorado | FOX31 Denver
Low Prices Lead To Layoffs In The Oil Patch
Layoffs Loom In Canada's Alberta Oil Patch

Whether this makes a large impact on the high wage engineers and management, I really don't know. It will have a fairly big impact on our economy this year at the very least. At the end of the day, this is oil prices. Tomorrow we could have some event that could cause oil to go back to $100 a barrel.... you just never know what will happen. Signs are pointing to a few bad years for energy states.

CHK did diversify by adding more oil to the mix, but they are still primarily a natural gas company.

I was commenting on your statement that you wouldn't be surprised to see large layoffs at ALL large firms, and if the past is any indication, it will largely depend on the type of company. Service companies will be hit hard until prices improve, E&Ps and midstream company employees will likely not feel it as much unless this lasts for a few years. Also, full-time in house positions include far more than high-wage engineers.

No doubt the price decline will have a negative effect on the economy here, hopefully prices improve at some point this year.

[bchris02]

What's really difficult to believe is that a decade ago when oil prices were first beginning their run-up, people were concerned that $50 oil was too high.

I think the real question at this point is how long will this last and how bad will it get. Will the local economy simply slow or will it flat out contract? Will it affect the currently proposed residential and commercial development downtown? The faster the prices tank the sooner they will find a bottom. I have read that investors are worried at this point about Sandridge. If there is a casualty of this there is a good chance it could be them.

[Rivalyn]

The quicker oil crashes the quicker OPEC members go broke, production declines and the price rebounds. Better for oil to take a beating and see production cuts in march then hover at $55-60 for a year.

OPEC members and specifically Saudi Arabia won't go broke. Their decision not to make production cuts with all the US crude flooding in is what's allowing prices to drop so drastically. SA said it best though when they said they weren't going to blink first as their production costs are only $5 a barrel with another $10 in overhead. Shale oil plays will be the most drastically affected so more so "once many of the US producers have been driven to consolidation" you'll see OPEC aggressively manage production because we have to guess they'll want to make up for lost revenue once it's harder for anyone else to increase production (as it'll take a couple years for another ramp up from shale producers once they see better prices). I wouldn't be surprised if you saw oil at $40 or lower for a while until companies start defaulting on debt and then skyrocket back to $100+ in a relatively quick fashion.

[bradh]

If you want to read about how Houston and Texans are feeling it (mostly a Houston slant), there is a great thread on TexAgs (an A&M sports website) about it, it's 32 pages long, and around page 26/27 is discussion from this week. Some very good information and perspective in there from some longtime industry vets.

Houston..we have a problem.... | TexAgs

[C_M_25]

OPEC Finds Everyone Else Guilty in Oil-Glut Blame Game - Bloomberg

You guys want to see a telling article, check this one out. It goes with our conversation about how wall street dictates to businesses on how they should be run. It is all growth based/short-term profitability. OPEC has figured out the stability is best (by the graph in the article); whereas, the US hasn't. Not saying either one is right or wrong, but if wall street would reward stability rather than growth, maybe we wouldn't be in this mess.

[bradh]

OPEC Finds Everyone Else Guilty in Oil-Glut Blame Game - Bloomberg

You guys want to see a telling article, check this one out. It goes with our conversation about how wall street dictates to businesses on how they should be run. It is all growth based/short-term profitability. OPEC has figured out the stability is best (by the graph in the article); whereas, the US hasn't. Not saying either one is right or wrong, but if wall street would reward stability rather than growth, maybe we wouldn't be in this mess.

Someone made that point in the TexAgs thread I posted, that back in the old days, slow and steady was how businesses were ran, and now it's growth now, not later.

[gopokes88]

OPEC members and specifically Saudi Arabia won't go broke. Their decision not to make production cuts with all the US crude flooding in is what's allowing prices to drop so drastically. SA said it best though when they said they weren't going to blink first as their production costs are only $5 a barrel with another $10 in overhead. Shale oil plays will be the most drastically affected so more so "once many of the US producers have been driven to consolidation" you'll see OPEC aggressively manage production because we have to guess they'll want to make up for lost revenue once it's harder for anyone else to increase production (as it'll take a couple years for another ramp up from shale producers once they see better prices). I wouldn't be surprised if you saw oil at $40 or lower for a while until companies start defaulting on debt and then skyrocket back to $100+ in a relatively quick fashion.

Saudi Aribia and Kuwait are exceptions. Iran is really getting hurt by this, and Venezuela is on the brink of collapse. This is as much about the Saudis punishing us, as it as about them punishing other OPEC members who are poaching their market share.

The Saudi's are reminding the world they are king and flexing their muscles doing it. There will be a price per barrel that inflicts so much pain you start hearing about cut backs, but the burden of those cuts will fall on non Saudi OPEC oil. I think the reason oil has fallen so far so fast is the market wants to find that number.

If you read analysts they are starting to get to the point at 100% negative towards oil and some even throwing out $15-20 a barrel. I believe this signals the bottom. Not on a fundamental level but on a market behavior level. When apple hit its peak every single analyst was saying it was headed for $1,000 per share and a trillion dollar valuation then boom a 40% drop. Same deal here.

[bchris02]

If you read analysts they are starting to get to the point at 100% negative towards oil and some even throwing out $15-20 a barrel. I believe this signals the bottom. Not on a fundamental level but on a market behavior level. When apple hit its peak every single analyst was saying it was headed for $1,000 per share and a trillion dollar valuation then boom a 40% drop. Same deal here.

Reminds me of 2008. Oil hit $150 and speculators were crying "onward to $200" and then the price saw possibly the biggest collapse in history, all the way down to $30/bbl in just a few months.

[gopokes88]

Reminds me of 2008. Oil hit $150 and speculators were crying "onward to $200" and then the price saw possibly the biggest collapse in history, all the way down to $30/bbl in just a few months.

I know a guy who uses an algorithm that tracks market sentiment. When it gets going to much in either direction he bets the opposite.

Look at this.



At the end of the trading day Tuesday, an exchange-traded fund tracking Brent crude oil fell to 94 percent below its average price for the previous 200 days. That created a once-in-a-lifetime chart that spurred strategist Larry McDonald to urge his clients to go long oil in order to bet on a snapback.

"I've never seen any major asset class 90 percent below its 200-day moving average," McDonald told CNBC.com late Wednesday. "That's three standard deviations."


Chart of the day: Oil freak fall can?t continue

[adaniel]

Saudi Aribia and Kuwait are exceptions. Iran is really getting hurt by this, and Venezuela is on the brink of collapse. This is as much about the Saudis punishing us, as it as about them punishing other OPEC members who are poaching their market share.

The Saudi's are reminding the world they are king and flexing their muscles doing it. There will be a price per barrel that inflicts so much pain you start hearing about cut backs, but the burden of those cuts will fall on non Saudi OPEC oil. I think the reason oil has fallen so far so fast is the market wants to find that number.

That is sort of the scary thing here. Saudi Arabia is seeing all of the oil production popping up in the US and elsewhere and they feel very threatened right now. They could care less about the rest of OPEC who they see as imbeciles, nor do they care if they hurt Russia, who is allies with Syria (and the Saudi's HATE Syria). Never underestimate a country that feels threatened and controls a lot of resources. They have no other economic activity besides oil, so this is a matter of survival for them. I was reading somewhere that SA's most recent budget contains their largest deficit ever, but they also have huge currency reserves they can burn through a while. This definitely has an "end game" for them, but SA is banking the US, Russia, and other OPEC countries will blink first.

Meanwhile, the world is literally awash in oil right now. They are literally renting tankers to store excess oil. This is going against the backdrop of a global economic slowdown in China, Europe, Japan, and Latin America. And on its current path, there's not telling when Russia will just collapse. I still say oil will be fine in the long term, but I am not so sure we will find bottom anytime soon.

[gopokes88]

That is sort of the scary thing here. Saudi Arabia is seeing all of the oil production popping up in the US and elsewhere and they feel very threatened right now. They could care less about the rest of OPEC who they see as imbeciles, nor do they care if they hurt Russia, who is allies with Syria (and the Saudi's HATE Syria). Never underestimate a country that feels threatened and controls a lot of resources. They have no other economic activity besides oil, so this is a matter of survival for them. I was reading somewhere that SA's most recent budget contains their largest deficit ever, but they also have huge currency reserves they can burn through a while. This definitely has an "end game" for them, but SA is banking the US, Russia, and other OPEC countries will blink first.

Meanwhile, the world is literally awash in oil right now. They are literally renting tankers to store excess oil. This is going against the backdrop of a global economic slowdown in China, Europe, Japan, and Latin America. And on its current path, there's not telling when Russia will just collapse. I still say oil will be fine in the long term, but I am not so sure we will find bottom anytime soon.

Back to my original point, that's why it's good the market is hammering WTI and Brent prices. The quicker and harder they fall the faster we hit that pain point. SA is basically telling the rest of OPEC we're good, if you want $100 barrel to return you are going to cut production not us.

[Jersey Boss]

Saudi Aribia and Kuwait are exceptions. Iran is really getting hurt by this, and Venezuela is on the brink of collapse. This is as much about the Saudis punishing us, as it as about them punishing other OPEC members who are poaching their market share.
The Saudi's are reminding the world they are king and flexing their muscles doing it. There will be a price per barrel that inflicts so much pain you start hearing about cut backs, but the burden of those cuts will fall on non Saudi OPEC oil. I think the reason oil has fallen so far so fast is the market wants to find that number.

If you read analysts they are starting to get to the point at 100% negative towards oil and some even throwing out $15-20 a barrel. I believe this signals the bottom. Not on a fundamental level but on a market behavior level. When apple hit its peak every single analyst was saying it was headed for $1,000 per share and a trillion dollar valuation then boom a 40% drop. Same deal here.

Disagree with the bolded statement. SA is wanting to maintain market share and is willing to do it by robust production. Strategically the upside for them is not to damage relations with the USA as we provide stability to the House of Saud. The falling price of oil is more damaging to Iran and Russia, both strategic partners to the hated Assad regime. SA is also opposed to the ruling class of Iran and anything that hurts them is good for Saudi Arabia.

[Just the facts]

The real threat to employees at local energy companies isn't how low or how long the price stay down - it is how long Wall Street will be happy with reduced earnings. The people on Wall street don't give a crap about anything other than their own bottom line. If they can make an extra 15 cents by laying off 500 people then you will see layoffs. You only have to look at Coca-Cola over the last few months to see how low Wall Street's threshold is for reduced-earnings (not even losses - just reduced earnings). There is going to be some hard justifications for Clayco and 499 Sheridan if employees are being laid off at the same time.

[Snowman]

Saudi Aribia and Kuwait are exceptions. Iran is really getting hurt by this, and Venezuela is on the brink of collapse. This is as much about the Saudis punishing us, as it as about them punishing other OPEC members who are poaching their market share.

....

Realistically though Venezuela was having large protests against the government for some time even when oil was at it's peak, so the price drop in oil is just a bump in the road.

[ljbab728]

An interesting new wrinkle.

Mexico's Pemex proposes to import US crude | News OK

Mexico's state oil company wants to import about 100,000 barrels of light U.S. crude a day to mix with this country's heavier oil as a way to improve refinery processes.
Mexico exported an average of about 803,000 barrels of oil a day to the United States in 2014.

[Just the facts]

...and now we know why the Keystone XL legislation had so much language dealing with energy flow across the Mexican boarder. If the choice is between exporting 100,000 barrels a day to Mexico or saving our oil for our own use later, I pick saving our oil for our own use later.

[bchris02]

Why oil could rebound to $80. Yes, $80. - Jan. 9, 2015

I hope this happens. $80 oil is expensive enough to keep the local economy humming but cheap enough for consumers to still benefit.

I said this at $150 oil and I will say it at $48; I think something needs to be done about speculation in the oil futures market. The price of a commodity as crucial as oil should be based explicitly on supply and demand and not traded like a stock. That's how it was prior to the Commodities Modernization Act of 2000, and before that, the volatility in the price of oil we've seen in the past decade was unheard of.

[gopokes88]

Realistically though Venezuela was having large protests against the government for some time even when oil was at it's peak, so the price drop in oil is just a bump in the road.

I wouldn't call a 10% contraction of GDP and 120% inflation a bump in the road.

[DoctorTaco]

US rig count tumbles

The US is down 61 (!!!) rigs this week, with the heavy plurality coming from the Permian basin of Texas. Last week the US industry idled 17 rigs. Year-over-year we are only down 4, however.

[adaniel]

^
Our company just announced we are leaving our capex unchanged this year, but we are largely getting out of the Permian. Just way too expensive in this price enviornment. Although in good news for OK, we are looking at expanding in the SCOOP.

And that sounds like a steep decline in rigs, but I think the actual decline may not be fully reflected in that number. I know of at least one company that has idled about 40 rigs.

One thing the consumer needs to know in this is these wells have sharp productions declines, especially in West Texas, somewhere in the neighborhood of 70% in the first yr. So a dramatic pullback in rigs is going to sharply reduce supply and put the economy at risk of a spike in prices, and we will be back on this roller coaster again. I give it 2-3 years. Really not good for the US long term.

Oddly enough, oil and gas employment went UP about 2,000 jobs in December, although I'm thinking this is just delayed reaction. Petroleum And Coal Jobs Rise - Business Insider

[Teo9969]

Why oil could rebound to $80. Yes, $80. - Jan. 9, 2015

I hope this happens. $80 oil is expensive enough to keep the local economy humming but cheap enough for consumers to still benefit.

I said this at $150 oil and I will say it at $48; I think something needs to be done about speculation in the oil futures market. The price of a commodity as crucial as oil should be based explicitly on supply and demand and not traded like a stock. That's how it was prior to the Commodities Modernization Act of 2000, and before that, the volatility in the price of oil we've seen in the past decade was unheard of.

By the end of the year? Maybe…but oil will definitely rebound, and depending on how much these low prices cripple various producers, particularly in places like Russia and Venezuela, it could go higher.

I would like to see a moving Floor/Ceiling on oil in the US. Kind of like average billing that a lot of utilities offer. If we looked since 2009 (5 years) and said the average price of oil was $80, then $80 would be the median. We'd set a range of +/- 25%, so the floor would be $60 and the ceiling $100. The median would roll on a 5 year basis and would move up or down based on the average price paid in the US over the previous 5 years. The range of the floor/ceiling would be elastic and the elasticity would be based on the volatility of the price in the world market during a 5-10 year period. So if Oil is all over the place, the elasticity may be higher. If oil is relatively stable, the elasticity would be lower.

This would require regulation on the E&P companies here and require that in times where the world price exceeds our ceiling, that they are only able to export anything that is in excess of our usage, but it also protects E&P companies from suffering at the hands of an over-supply. Being one of the larger consumers, as long as the equation has some fluidity to it, the rest of the world will not ignore our pricing structure.

(And just so it's clear, the equation would obviously need far more development than what I've given here…but the basic idea, I think could work)

The main idea is that our lifestyle choices don't face a constant whiplash effect from the volatility that the oil market sees. Today people are buying SUV's…in 12/18/24 months when gas prices are back up to $3/gallon, people will be selling their SUVs. Today, people will be vacationing, and those who benefit the most from tourist dollars are going to do well…in 12/18/24 months, when oil prices are back to $85/bbl, the income these people have counted on will start drying up and business will shut down and then reopen and then shut down. The average person does not handle volatility very well at all.

[Edgar]

Why oil could rebound to $80. Yes, $80. - Jan. 9, 2015

I hope this happens. $80 oil is expensive enough to keep the local economy humming but cheap enough for consumers to still benefit.

I said this at $150 oil and I will say it at $48; I think something needs to be done about speculation in the oil futures market. The price of a commodity as crucial as oil should be based explicitly on supply and demand and not traded like a stock. That's how it was prior to the Commodities Modernization Act of 2000, and before that, the volatility in the price of oil we've seen in the past decade was unheard of.

Wall St owns too many politicians on both sides. Save Elizabeth Warren no one has the courage to take them on. Our economy has pretty much recovered from the great recession they caused, time to repeal Dodd-Frank, unbridle the Wall St sociopaths and let them gamble again with people's retirements no strings attached.

[s00nr1]

The Crazy Way Oil Traders Plan to Make Millions on Oil Prices