Ebola!! ISIS!! Putin!! Yet Oil Prices Drop

Despite plenty of turmoil in several oil-producing areas of the world, crude oil prices have dropped. Russia at war in Ukraine, Ebola striking fear into N Africa, ISIS wreaking havoc in the Mid East, Libya once again in civil war, terrorists in Nigeria on the loose.  Yet oil is dropping, from 110/bbl a yr ago to 90/bbl today

There are several reasons for this strange phenomenon. One is the global economy is slowing down, Europe in brink of recession, China slowing noticeably.  Another is the large advances automakers have made in getting better mileage in new vehicles with even more to come. (100 MPG or better cars are coming soon!!).  But the biggest reason is the advance of horizontal drilling and hydraulic fracturing getting huge increases in oil production in the US.

  US citizens and the entire world should be very happy that HVHF has saved them from drastic jumps in energy prices and prices of nearly everything else because energy is a key component to just about every product made and shipped. Food is especially affected by energy prices so keeping people fed at reasonable prices is critical.

But while we should rejoice that HVHF and those evil oil companies have insulated us from the affects of global crisis, it does have a downside for landowner/mineral rights owners.  If oil prices are actually dropping if the face of multiple foreign disruptions, what does that mean for future drilling and royalties? Will companies continue to invest hundreds of millions of dollars going after new resources or will they cut back because of fears that oil will continue to drop? If oil drops under these circumstances, will it drop even further if and when things calm down? How rapidly will other countries use the new technologies to develop their own fields? Will prices fall enough that it is no longer feasible to keep leasing, keep drilling, keep building out infrastructure? 

Areas that are marginal will certainly be affected. Even some of the best areas may see a slow down in activity. And people that are already getting royalties will see a drop in their checks.

Views: 4268

▶ Reply to This

Replies to This Discussion

Permalink Reply by Trapper on October 5, 2014 at 2:36am
Amen Frank. There is no doubt in my mind thatPOTUS' only goal is to inflict as much damage as possible in his 8 year window of opportunity. At this he succeeds.
Permalink Reply by jerry lee nichols on October 6, 2014 at 7:28am

While I agree about Obama, I hae to wonder what the true price of oil is to the USA.We don't get very much if any middle east oil and the price of oil differs ie Nigerian light sweet or Texas light sweet etc.

Permalink Reply by JRW on October 6, 2014 at 10:48am

Frank try to stay on topic and not ruin a good thread with your politics, your just showing how fucking dense you are.

Permalink Reply by gary smith on October 6, 2014 at 1:34pm

seems you're a moron jrw. 

Permalink Reply by Summer Johnston on October 7, 2014 at 2:21am

It is only natural to attack the person who is currently leading the country. Fact is, there's plenty of blame to go around.

The USA lacks leadership. Period. We have no statesmen. Sometimes tough decisions must be made that will impact one segment of society more than others for the good of all, which is okay as long as that segment doesn't contain us. We must accept some of the blame. Since 1992 we've had essentially the same ol' same ol'---Bush, Clinton, Bush, (Obama)--and now we're looking at recycling another Clinton, with potentially another Bush (Jeb) or I saw an article the other day about Romney taking a re-look. Enough already.

Global events cannot help but impact the need for petrol products which affects prices paid to landowners. Europe appears to be entering a period of deflation. That will not be an isolated event. The question remains is how that kind of contagion gets contained. There are plenty of problems confronting us and I'm afraid it's just getting started. 

Permalink Reply by Utica Watcher on October 13, 2014 at 3:39am

Interesting read below on the possibility of oil prices staying below $100/barrel for the next couple years.  Good for the consumer.  Not as good for the producer and landowners (royalty beneficiaries) if true.

http://www.msn.com/en-us/money/markets/exclusive-privately-saudis-t...

Permalink Reply by Joseph-Ohio on October 13, 2014 at 4:21am

If the result is more development it's good news to the landowners regardless of what the $ / barrel works out to be.

If more development means we're not involved in oil wars it's good news for the country.

If gasoline / oil / natural gas prices are lower for the citizenry here in the USA it's good news for the domestic consumers.

If we're not buying foreign fossil fuels we're not funding / subsidizing enemies / potential enemies.

Let's take care of us and forget about the welfare / living standards elsewhere.

Drill baby drill.

All only IMHO as it always is.

Permalink Reply by Utica Watcher on October 13, 2014 at 4:48am

Joseph,

I agree with you that everything you pointed out would be positive, and I sincerely hope is the case!  The point with the post I was trying to make is that this article and OPECs decision is somewhat worrisome.  You may not care what the "$/barrel" is, but I promise you that producers do care.  The less that the product that they're producing sells for, the less incentivized a company is to actually produce.  For landowners, this could result is somewhat slower development.  What is being developed is selling for a lower price, which nets lower royalty to the landowner.

What your reply speaks of I agree are all great things.  The power OPEC has is scary though. 

Permalink Reply by Joseph-Ohio on October 13, 2014 at 5:54am

Utica Watcher,

I get that less $ / barrel tends to de-incentivize O & G interests.

But the positives IMHO far outweigh the negatives.

More development means more volume.

Make it up in volume would be my answer.

Drill baby drill.

Good luck to all of us.

I think we need it.

All IMHO.

Best regards,

J-O

Permalink Reply by Bluflame on October 13, 2014 at 6:43am

     Most of the E&P's have borrowed big $$ to fund their drilling programs in anticipation of high returns from production. (I'll give you a dollar next week for a hamburger today!) That may create a "Catch-22" situation for some E&P's. In the face of lower crude oil prices, they must produce more oil to make interest payments on borrowed money in addition to funding normal operating expense. To accomplish this, they must borrow more to fund drilling programs. As their financial picture declines, terms on new loans will become more onerous.

   The E&P's do not tout their balance sheets on their periodic investor reports. The debt levels and interest payments appear on quarterly reports, buried deep in financial documents. IMHO, extended low crude oil prices will land many E&P's in financial difficulties. They will be unable to drill themselves out of the problem. Fortunately, natural gas and NGL prices have not fallen off the cliff, at least so far.

BluFlame

Permalink Reply by jerry lee nichols on October 13, 2014 at 7:05am

Since what you say is the truth,what kind of effect will this have on commodities speculation in the near future as this has been a price driver on oil although not so much on other products?

Permalink Reply by Bluflame on October 13, 2014 at 8:31am

  Jerry Lee, 

  Commodities speculation is a swinging gate. When the future looks grim for oil prices, such as now, commodity speculators turn to "selling short" as opposed to buying. If short sellers bet correctly, they are able to buy the commodity later at a lower price. "Selling short" is more risky than buying on speculation. The Commodity buyer can "only" lose his entire stake if for some reason the price goes to "0". Short sellers, on the other hand, have an infinite loss exposure, since there is no cap on price and they must purchase the commodity at some future point.

  So, IMHO, we will likely see more short selling. Not necessarily a bad thing though, because those short sellers must ultimately become buyers.

 

Goodness gracious, great balls of fire,

BluFlame

RSS

© 2024   Created by Keith Mauck (Site Publisher).   Powered by

Badges  |  Report an Issue  |  Terms of Service