Background on collapse in crude oil prices – 1/20

Slightly out of focus photo by James Ulvog.
Slightly out of focus photo by James Ulvog.

All the world’s players are reacting to the sustained drop in crude oil prices. Here are a few articles I’ve found of interest lately. Another post soon.

1/12 – CNN money – OPEC considering emergency action on oil prices – Article hints that OPEC may have an emergency meeting as soon as February. Next scheduled meeting is in June. Goal would be to get production cuts which will pull oil off the market and increase prices.

Article asserts Saudi Arabia started the price war (which is now the appropriate word) to go against shale producers in the US. That has been my assumption all along. Most articles I see in print now state that as common knowledge.

OPEC may be about ready to blink.

12/28 – Bloomberg News at Calgary Herald – Shale drillers running out of tricks to survive as OPEC keeps up pressure Shale drillers have done all they obvious things to cope with $50 oil: lay off staff, focus on the best spots, increase amount of sand, drill smarter, drill faster, and squeeze suppliers. That has allowed the industry to essentially maintain production.

But now oil is at $35.

The distress is putting more companies into bankruptcy and moving more in that direction.

Article expects output from shale oil to drop. Further guess is the drop won’t be enough to balance the world oil market.

OPEC members are also in a cash crunch.

One cited analyst says there will likely be a one million barrel per day oversupply for the first half of 2016.

1/12 – Reuters at Dickinson Press – Oil’s slide below $30 sends shockwaves far and wide West Texas Intermediate broke the $30 line yesterday. Prices have dropped substantially thus far in January.

Sales of energy provides half of the Russian government’s budget and 40% of its exports. Article says a $30 price could use up the foreign reserves in another year.

As I’ve mentioned before, the article points out the drop in price has created lots of “zombie” firms, which are not able to do much more than just pay their bills. Article says there are dozens of companies that have filed for bankruptcy protection or become zombies.

1/14 – Wall Street Journal – Oil Prices Tick Higher – Brent price is $30.62. NYMEX price for light sweet crude is $30.88.

1/14 – Wall Street Journal – Oil Rout Forces Companies to Delay Decisions on $380 Billion in Projects – Article describes a report from Wood McKenzie which tabulates that last year the major oil companies postponed 68 projects around the world with development costs of $380B.  overall the deferred projects would need an average price of $62 over the projects lifetime to break even.

Report indicates most of the delayed projects were deepwater efforts.

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