Peak Oil is You
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Page added on December 17, 2015
Get Ready for $20 Oil
For those of you waiting for the inevitable rebound in oil prices, you might be waiting a while longer.
Global energy markets are still holding out for a much bigger contraction in oil supplies before the oil price rallies, but the ongoing low-oil-price environment will likely put further pressure on this process. With the price of West Texas Intermediate (WTI) testing six-year lows, the rate at which energy companies are rushing to cut spending and cancel drilling projects will increase, eventually bringing about the much-needed market correction.
Translation: oil falling below $40.00 per barrel was a good start, but we’ll need it to drop to $30.00 before extreme pressure on companies can translate to a much-anticipated rebound.
Oil Price Crash: It’s Going to Get Worse Before It Gets Better
If you thought the upstream exploration and production sector was going through a tough time, you haven’t seen anything yet. With the last remaining vestiges of favorable hedging about to dry up, oil drillers are about to be exposed to the reality of $35.00-per-barrel oil.
While a great many oil and gas companies were able to stave off financial ruin by cutting back on expenses, lowering service costs, and making their operations as efficient as possible, January will prove a critical period for many. As previously locked futures expire, the financial stress of exposure to the ongoing oil price collapse will cause widespread havoc on companies’ balance sheets. (Source: “With oil hedges rolling off, U.S. shale producers face stiff test,” Reuters, December 14, 2015.)
Of the 30 biggest oil companies surveyed by Reuters, just five were able to expand their hedging strategies in the third quarter of 2015. The remaining 25 were unsuccessful and saw their hedging positions recede as futures contracts expired. Most alarmingly, eight of the companies surveyed held no hedging positions at all for 2016.
Fewer than expected seem to have taken advantage of oil’s slight rebound back in late spring 2015, when WTI briefly surged to around $60.00 per barrel. Rather than learning their lesson from the missed opportunity to lock in at least a portion of their production, most oil majors again overlooked the opportunity to do so when oil rose to $50.00 in September to October.
Whether it was greed or false optimism, what’s done is done. The chance to lock in prices and guaranteeing some semblance of survival in 2016 has passed. The resulting exposure in January will be nothing short of savage, as oil prices now threaten to hit their lowest level in more than a decade.
The long-term effects of not pursuing a hedging strategy cannot be overstated, because a lower bottom line translates to lower investment expenditures, which means lower production at a future date. Companies have no incentive to drill when they face the prospect of losing money on each barrel of oil pumped, which in turn causes them to become more and more conservative in pursuing new projects.
When Efficiency Is Not Enough
Turning a profit when oil hovers below $36.00 per barrel is no easy feat and even the most efficient upstream producers will find themselves unable to keep up with the ongoing downturn.
Despite producers showing a fair amount of resourcefulness when it came to adapting to the oil price crisis and employing strategies, such as concentrating on “sweet spots,” getting creative with lateral drilling and putting pressure on suppliers, this may not be enough to survive. Analysts estimate that perhaps a third of all oilfield service companies will not make it through 2016. (Source: “Crude falls as fears of glut intensify,” Houston Chronicle, December 11, 2015.)
Shale oil plays will be hit worst of all, it seems. This is not to say that extreme efforts were not made to try and prevent it. The breakeven cost of producing a barrel of North American shale was once about $65.00 per barrel, but some very clever workarounds led to efficiency gains that pushed it down to $50.00. Cutting costs and streamlining operations can’t go on forever, though, and it appears that this is about as efficient as shale oil can get.
The oil sector will be responding to the ongoing crisis and cutting expenses by a forecasted $115 billion in 2016. (Source: “$30 Oil Will Accelerate Much Needed Rebound,” NASDAQ, December 15, 2015.) The decline in active U.S. oil rigs continues, after North American shale showed an impressive resilience, and what some might have called stubbornness, in the face of growing global oversupply. Overall American rigs fell by 28 last week, the largest drop in three months. (Source: Baker Hughes, last accessed December 15, 2015.)
Oil Price Forecast 2016
As oil continues to test record-lows, there is ample reason to expect this rig reduction rate to grow. The combination of lower expenditures and falling rig counts will result in lowered medium- to long-term production levels. Ongoing projects will eventually dry up and be abandoned and there won’t be the same replacement rate of new projects to take their place. It’s only then that we will see a rebound in oil prices.
23 Comments on "Get Ready for $20 Oil"
makati1 on Thu, 17th Dec 2015 8:18 pm
Bring it on! $10 is ok too! Better yet $5 oil.
The sooner we crash and burn the better for the world as a whole and our kids and theirs in particular.
Mark Bucol on Thu, 17th Dec 2015 8:31 pm
If oil goes to $20 per barrel the Bakken producers will get $2/barrel for their oil (after transportation and production costs), a loss of at least $30 per barrel. Collectively they would lose $1 billion per month. Most would shut the wells down for a period of months, some permanently. If oil goes to $20 and stays there for longer than a couple months, world production would decline by a huge amount, maybe 2 to 3 million barrels/day after a few months.
The cure for low oil prices is “low oil prices” and crude would rocket back above $50 shortly unless the world economy is wrecked by then (all IMO).
Pennsyguy on Thu, 17th Dec 2015 10:02 pm
Not long ago, cheap oil meant sky rocketing economic growth and monster V-8 cars in the U.S. Now it means something quite different. If there is a god, she must love irony.
theedrich on Fri, 18th Dec 2015 2:57 am
Note that, as we near the cliff, the Masters of the Universe, led by Ø, are using “American values,” slogans about “who we are as a people,” and even claims about “what the Bible says” to exacerbate the collapse by importing hordes of ThirdWorlders. After Mr. Dumpty’s fall, not all the Ponziists in the world will be able to feed and house our own people, let alone the new parasites. The Thirdies will probably go on a rampage, as is normal in their cultures. And the Saints in the Camp of the Saints will blame it all on the evil Whites. Somehow $1/gallon gas skyrocketing to $200/gallon won’t make available the energy needed to keep the engine going. Maybe the Saints will bring Stalin and Mao back from the grave. After all, it has to be “to each according to his need.”
Davy on Fri, 18th Dec 2015 7:43 am
Friday markets tend to be red in uncertain times. The following may make today interesting:
“Explaining Today’s “Massive Stop Loss” Quad-Witching Market Waterfall: Why 2000 Must Be Defended At All Costs”
http://www.zerohedge.com/news/2015-12-18/explaining-todays-massive-stop-loss-quad-witching-market-waterfall-why-2000-must-be-
“largest option expiry in many years. There are $1.1 trillion of S&P 500 options expiring on Friday morning. $670Bn of these are puts, of which $215Bn are struck relatively close below the market level, between 1900 and 2050.”
“What is most important, is that the “pin risk”, or price toward which underlying prices may gravitate if HFTs are unleashed to trigger option stop hunts, is well below current S&P levels: as JPM notes, “clients are net long these puts and will likely hold onto them through the event and until expiry. At the time of the Fed announcement, these put options will essentially look like a massive stop loss order under the market.”
PracticalMaina on Fri, 18th Dec 2015 8:21 am
theedrich, 2 citys with large Muslim populations were just voted 2 of the top 5 lowest crime rates in my state. These individuals are mostly Somali and know all about lack of food. I heard rumors when they first came here landlords were running into problems with them raising laying hens in the cupboards. I believe they figured out this was not allowed and now support a bunch of small sustainable farms, as they are more accustomed to eating goat or similar smaller than beef critters.
PracticalMaina on Fri, 18th Dec 2015 8:24 am
*they weren’t voted, it was the lowest number of police reports.
I just moved out of one of these citys and most of the fuckers on the government tit, at least on my street, were the same color as you and I.
Bob Wastes on Fri, 18th Dec 2015 7:23 pm
yeah and i recall people claiming the days of 100-150 dollar oil were coming and would be here forever.
You are no better at predicting than anyone else. Its just that your prediction. So many things could happen.. Saudi could suddenly get caught up in Arab spring and loose control of their country to radicals more radical than they are.. Do i think we will see high oil prices again? Yes and it will be sooner than many think.
Brace yourself for the coming war.
Apneaman on Fri, 18th Dec 2015 9:29 pm
theedrich, you fucking loser. Any white man born and raised in N America who is bitching and blaming their shitty life on raggedy assed third worlders has to be the biggest, most incompetent, dumbest, laziest piece of shit on the planet. My cousin has been a quadriplegic from a car accident 25 years ago and I have heard you spout more self pity about your pathetic life in a month than he has since his accident. You suffer from the lowest form of self flattery – the special victim (special olympics maybe). Woe is me. The whole world is against me and my tribe (sounds exactly like the christian fundies). No commoners in the history of the world have had more advantages than white N American males.
“The Thirdies will probably go on a rampage, as is normal in their cultures.”
lady steals from KID! black friday 2015
https://www.youtube.com/watch?v=7klNQyyLpiA
“….by importing hordes of ThirdWorlders.”
More Mexico migrants leaving US than arriving – study
http://www.bbc.com/news/world-us-canada-34874315
Apneaman on Fri, 18th Dec 2015 9:58 pm
theedrich, here is one of a thousand sites where the women of the white race do what they do. How much meaning is in ones life if this is how one spends their free time? Apparently, the boyfriends and husband like it – a form of bragging. They do it too. If this is it, is it any wonder the great white race is done? Who you gonna blame this on? 3rd worlders? muslims? This is what happens to decadent cultures – they commit suicide.
https://www.reddit.com/r/Amateur/new/
peakyeast on Fri, 18th Dec 2015 10:05 pm
More Mexico migrants leaving US than arriving – study
http://www.bbc.com/news/world-us-canada-34874315
Now it makes so much more sense why the US is building a fence at the mexican border.
😀 just kidding.
GregT on Fri, 18th Dec 2015 10:17 pm
If you aren’t willing to be a decent immigrant theedrich, go back to your roots in the Caucasus in Russia where you belong.
GregT on Fri, 18th Dec 2015 10:20 pm
” just kidding”
Good thing that you added that disclaimer peaky. You were flirting with the ‘anti-american’ stereotype.
makati1 on Fri, 18th Dec 2015 10:36 pm
Peaky, it looks bad when the escapees from a 3rd world country are starting to go back because their new home is worse than their old one.
peakyeast on Fri, 18th Dec 2015 11:05 pm
@GregT: Yeah – I obfuscate my stereotype by masking it with a semblance of humour in order not to upset those feebleminded enough to subscribe to nationalism and patriotism. 😀
@Mak: Indeed it does.
From my perspective the rats are running around trying to find some spot on the boat that is not sinking. Some goes from A to B – other from B to A. But at all points the violent and socially deficient are biting all that vie for a dry spot.
GregT on Sat, 19th Dec 2015 12:16 am
Good for you peaky. I used to believe in diplomacy, and in being non-confrontational. I have since learned otherwise. It doesn’t work, at least not for me. If it works for you, all the power to you. Myself, I’m fed up with the American exceptionalist attitude, and I will stand up against it whenever possible. As for Americans themselves, I feel very badly for the tens of millions that have been cast into that bad mould. They don’t deserve it, and would be better served to eradicate the mindlessly indoctrinated among them. Of course that probably won’t happen, it is far too late to change now.
Davy on Sat, 19th Dec 2015 5:24 am
Yea, our board “American exceptionalism” hater speaks. Let’s point finger with blame and complain because that is where the power is. Let’s use double standards in our attacks because our arguments stink when the fact is the rest of the world is part of the same exceptionalism. Let us believe in the ends justifies the means and do dirty things just like they do. Let’s attack and discredit whenever we can because they do it. Let us practice the same thing those we hate practice. Let us fight fire with fire. Let us indoctrinate with our righteousness because they are indoctrinated with theirs. Sounds like something a nasty political extremist organization would preach in their effort to get to the top. This is what they say when they turn their back on diplomacy and embrace war.
peakyeast on Sat, 19th Dec 2015 7:37 am
@GregT: I understand you Greg – when I was young I had no qualms about fighting for ideals. But this seems to work better for me – since I dont get my bloodpressure and emotional state too high for people that dont want to understand that we are one big lousy yeast culture happily eating away the substrate we live on.
Apneaman on Sat, 19th Dec 2015 11:04 am
C’mon Greg it can’t be that bad trying to reason with them……can it?
1 In 4 Americans Thinks The Sun Goes Around The Earth, Survey Says
http://www.npr.org/sections/thetwo-way/2014/02/14/277058739/1-in-4-americans-think-the-sun-goes-around-the-earth-survey-says
Davy on Sat, 19th Dec 2015 11:22 am
Thanks Ape Man for the support
JuanP on Sat, 19th Dec 2015 11:51 am
The story that the USA is being invaded by illegal aliens has been a myth at least since 2008. There are less illegal aliens living in the USA today than there were a decade ago. I knew many that have left and gone elsewhere or back home.
There is still a growing legal alien population, but even legal aliens are leaving the USA in droves. Most of my alien friends have left the USA and are never coming back. Many immigrants realize after a handful of years living here that the USA is not what they thought it was and want to leave. Unfortunately, there aren’t many places good enough to go to left in the world.
Many Latin Americans don’t even want to come here as tourists, particularly the rich, they’d rather go elsewhere. My mother will pay us to go visit her in Europe or Latin America any day, but she is no longer willing to come to the USA, she won’t even do a stopover on her regular trips to Europe anymore, and I understand her. The same applies to most of my family and friends from Uruguay.
I wish I had never come and advice people regularly to go elsewhere, particularly Canada, Australia, Costa Rica, and New Zealand. Emigrating to the USA or the EU now is a mistake unless you have no other choices.
JuanP on Sat, 19th Dec 2015 11:57 am
Theedrich is obviously a dply disturbed human being. It is best to ignore demented people like him. Some people are so irreversibly fucked up they can only get worse.
peakyeast on Sat, 19th Dec 2015 12:14 pm
@Ape: What kind of trick question is that to pose normal people?
Its all a matter of definition. All the interviewees are really saying is that the world is revolving around them and who can prove that wrong?
You cant define the sun as the center just because some small stones and gas bubbles also rotate around it – after all earth also has satelites and earth is the only one that really matters.
Besides the real reason why the sun has been defined as the center of our system is because of 2 main facts:
1. The math for calculating orbits was much easier if they did this. What a bogus reason if there ever was one!! We dont define what is right or wrong because its easy or difficult.
2. The illuminati wanted to oust the church and its true belief in the only God. And we all know they hired and conspired with scientists to do this.
😉