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.

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Permalink Reply by Joseph-Ohio on October 13, 2014 at 11:47am

Great balls of fire to all enemies of we citizens of the great United States of America !

Great balls of fire to them all - not today- not tomorrow - but retroactively to the freakin' stone age !

All IMHO

Permalink Reply by bungalow_steve on October 13, 2014 at 7:38am

Fracking destabilized the gas market, so everyone moved to oil, so that is now being destabilized. Yea, probably $80 is going to be the norm until a big recovery occurs in Europe and China.

Middle east / Russia conflict always been there, Ebola too. AIDS wiped out ten's thousands of Americans before anyone cared, we are on top of Ebola compared to that.

Permalink Reply by Dexter Green on October 13, 2014 at 12:36pm

The market is neither destabilized nor is this price dip the result of more fracking.  The Saudis need Putin to play ball with them on Syria.  Assad is a monster and the Saudis want him gone.  The Russians--either because they're ornery or because Putin wanted to challenge America--are propping Assad up (for now).  If the Saudis do not cut production (they won't) it'll squeeze the living Hell out of Russia whose break even point is rumored to be $95 (Brent).  

For perspective six of the 12 OPEC countries have a break even price above $100.  Only Kuwait, Qatar, and UAE have break even prices below the current price of Brent.  Iran is by far the highest at $116.  

Permalink Reply by Joseph-Ohio on October 13, 2014 at 1:31pm

What's the current break even here in the USA ?

Sounds like it's stacking up as more than the $85.74 per barrel shown right now at the top of this page.

Permalink Reply by Dexter Green on October 14, 2014 at 4:41am

Break even point for the US doesn't exist since our industry is made up of thousands of companies that are both private and publicly traded.  Each company has its own number.

Permalink Reply by Joseph-Ohio on October 14, 2014 at 4:50am

Not even an 'estimated average' available ?

All info. on that order proprietary ?

Makes it pretty tough for guys like you to do your job doesn't it ?

Makes it even tougher for guys like me to understand 'watinell' to believe / hang our hats on doesn't it ? ! ? 

Permalink Reply by Joseph-Ohio on October 19, 2014 at 11:33pm
http://www.bloomberg.com/news/2014-10-17/oil-is-cheap-but-not-so-ch...

Philip Brutz provided the above link to a Bloomberg article on another post just yesterday.
http://gomarcellusshale.com/forum/topics/opec-the-ultimate-beat-dow...

The above links the post.
The article discusses domestic break even costs in some great detail.
Permalink Reply by Dexter Green on October 20, 2014 at 3:15am

It's a good article but it makes assumptions for break even prices across each individual play but not by company.  Everyone's "in" costs are a little different.  For example, CLR has been in the Bakken for a while and they got a lot of great assets at a much cheaper price than someone who got there much later.  Smaller companies who tried to muscle their way in at higher prices will have a higher break even.  Look at the Utica.  MHR has bought a lot of strong acreage and they did so at a reasonably cheap price.  ECR bought out Oxford for an insane valuation and their debt is hampering their capex.  They have acreage near one another but the break even is not even close between the two of them.  It's too difficult to judge break even on a micro scale, which I imagine is why Bloomberg went play-by-play rather than company-by-company.  

Permalink Reply by Joseph-Ohio on October 14, 2014 at 5:17am

Saudis have Dubai to keep ticking and also need to keep the Shieks' Rolls Royces fueled so they can cruise the dunes and pay their subjects enough to guarantee that their educations and health care are covered cradle to grave.

Iran needs to keep their empowered rolling in dough so they can kick back and enjoy their lifestyles as they create havoc with the rest of the world building atomic bombs (which they say they're not doing but everyone knows they are).

Russia's empowered have to keep all the wealth confined to themselves under any and all circumstances while doing all they can to gather more of their lost satellite countries back together.

China's elite want a bigger piece of the pie because there are so many subjects to deal with while they also assure they remain empowered under any and all circumstances.

North Korea wants to 1st re-absorb South Korea so the dictator there can enjoy more of the finer things of life and make friends with more Basketball Players from the USA. 

Our politicians want to keep the money flowing in their direction and do that by keeping the money flowing in the direction of the empowered business leaders here in the USA as they take more and more from individual citizens so they can have the best of everything in life while simultaneously buying power from politicians.

Iraq and Syria have their caliphs that want to be the supreme leaders of their countries and want their caliphates and are willing to kill anyone who has a different perspective on how everyone should live their life.

Fine kettle of fish !

Apparently such is life !

Apparently such is the 'New World Order' !

Permalink Reply by Jim Litwinowicz on October 14, 2014 at 9:35am

Dexter; fascinating theory.  Do have a link to any articles expressing that idea? Does seem to fit with the history of the area.

It would also be a great way to do serious damage to Iran, Saudis main enemy and the supporter of Hamas, Hezbullah, and many other terror groups around the planet such as those in Somalia and elsewhere.

Permalink Reply by Trapper on October 14, 2014 at 10:00am
The Saudis want Asssd gone so they can build pipelines through Syria to Turkey and Europe. Putin will do all he can to maintain his energy chokehold on Europe. If Assad is overthrown,rest assured it will be by someone Putin picks. Someone hostile to Saudi Arabia. ISIS perhaps? IMO , they came out of nowhere as a power to be reckoned with way too fast. They are Putin's Plan B.
Permalink Reply by Jim Litwinowicz on October 13, 2014 at 11:57am

Its starting already.  Drillers in the Bakken are now cutting back on next year;s drilling budget as prices re too low.  I am sure others are also considering the same.

http://www.bloomberg.com/news/2014-10-13/bakken-drillers-poised-to-...

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