^ This is the same problem in utilities/power/natgas/oil .... allot of people near retiring and a few young people at the bottom that have technical degrees, and not allot of meat in the middle. That is also why you see huge deflationary pressures in all commodity space ( baby boomers are affecting the market), as well as you see huge demands for American Engineers with PE licences

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Guys it isn't rocket science, oil like most other commodities drops sharply prior to an economic downturn typically due to a drop in demand. This is obviously very difficult to predict when this will happen but I assure u oil will drop sharply prior to you feeling the effects of next economic downturn arriving which looking historically probably isn't too far off. Additionally, Emerging economies which have lifted oil previously are starting to show signs of slowing.

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WTI Crude Oil Futures suddenly triggered sell stops below $85.50 and free-fell to a new session low. The contract reached a $85.07 which represents a 21% decline from their June 20th high of$107.73.

I took the time recently to plot historical WTI prices and crude rig counts. There is a fairly high correlation between price and crude rig counts especially from 2006-2014. Mid $80/bbl oil implies a rig count significantly lower than the high of 1,601 rigs seen the week of September 19th.

Sustained $60+ oil drove a huge run up in crude rig counts after the 2008-09 recession, and $90+ oil made a lot of otherwise marginal wells profitable.

This also led to an interesting comparison on the nat gas side:
The highest (post 2000) gas rig count was 1,585 rigs in September of 2008, by February of 2009 it had fallen to just over 1000, and one year later was right at 700 rigs. There are between 300 and 350 rigs drilling for gas today. Just a few years prior to 2008 Cheniere was building an LNG import terminal due analysis at the time suggesting the US would need to import gas to meet consumption needs in the face of declining onshore and offshore production. How many LNG export terminals are now planned or under construction, and now there is a push to allow crude exports?

nearly all the super giant fields in the world are in decline.
~70% of world supply comes from those handful of declining fields.

My belief this is not a supply in essence problem, but less and less demand. The economies around the world Europe + Asia are in major problems , also with the strong dollar this makes major head winds for oil.


-- My net belief be long the oil servicers not the drillers....

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we ( a MAJOR oilfield equip manufacturing company) are starting to see a very telling slow down in requestst for proposals and some " yall slow down deliveries" type messages from our customers

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Operators are not just cutting their operations back on the drop of a dime because of a quick decrease in oil prices. Rig schedules obviously go out for years and these things are planned in long wavelengths. As far as offshore goes, I can say that we've been dealing with bad loop currents this summer that are still sticking around that have caused huge delays across several rigs.

To think that a message that you're getting to slow down deliveries a little relates to a quick drop in oil prices is completely silly, to say it nicely. I think if anything, you're seeing some delays (whether it be loop currents or just the standard delays that happen) and seeing oil prices going down and felt the need to come fear monger, with your justification being "I've seen things, man."

Assuming this is more than just a run down into the low 80s/high 70s like we've seen a handful of times since '09. Does anyone think this dip will last longer than '08-'09? If so, why?

OPEC won't let it get much cheaper in the long run. Saudi Arabia needs to start funding a nuclear weapons program to match Iranian wackos so they will need the money

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Operators are not just cutting their operations back on the drop of a dime because of a quick decrease in oil prices. Rig schedules obviously go out for years and these things are planned in long wavelengths. As far as offshore goes, I can say that we've been dealing with bad loop currents this summer that are still sticking around that have caused huge delays across several rigs.

To think that a message that you're getting to slow down deliveries a little relates to a quick drop in oil prices is completely silly, to say it nicely. I think if anything, you're seeing some delays (whether it be loop currents or just the standard delays that happen) and seeing oil prices going down and felt the need to come fear monger, with your justification being "I've seen things, man."

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Put your comments in the context of a HUGE run up in equipment a costs as well as hUGE run ups in operations costs and you will be surprised in what companies cut.

And to talk about loop currents as a reason for an equipment manufacturer to see delays is well... Actually I don't know what to say about that.

Well that's not even what I said. I said it would be a reason for operator delays, which would slow down the need for equipment.

And rising costs may cause an operator to focus on higher margin plays but they're still increasing activity in the Gulf.

In 1980, I interviewed for a job in Ponca City with Conoco for a seismic analysis position. Oddly enough, I didn't know that I was interviewing for a seismic analyst position until after I arrived there.

At that time were expending like crazy. One thing that surprised me was that just a couple of years earlier, they had only two seismic analysts. In 1980, they were, if I remember correctly, occupying an entire office building and expanding quickly to fill a second building. (They may have been occupiying two office buildings and expanding to fill a third building.)

By the time I got back to College Station, I had decided that I probably didn't want to work in any industry with that big a difference between booms and busts.

Sounds like you've missed out

Just asking out of curiosity, if the $WTI/$Brent ratio rises above 1, will this have any effect on decision making by the powers that be? It appears that this hasn't been Q1 of 2010. Or I guess the better question would do these two benchmarks have any significant effects on one another?

*Question being asked by someone who knows very little about O&G markets

Houston is about to start feeling it. Break $80 and psychologically tight oil is out.

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Houston is about to start feeling it. Break $80 and psychologically tight oil is out.

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Hoping my house loses 40% soon too. That would be just peachy.

This morning bid-hit-bid-hit ... I know a few people at several companies in Houston, that are considering selling off assets to raise cash, allot of their plays are not IRRing as well as they thought

I sure hope this isn't like 08,i remember heading out to a Patterson - uti rig in Midland and seeing a former company man on the drill throwing chain. That was back when oil was at around 35, really hope we don't get below 75 this go around.

I've seen and heard speculation that it could very well be $60 by the end of the year. The Saudis want the market share, so they won't be cutting back on production or supply, essentially giving some of OPEC the middle finger. Venezuela and Iran will implode with that. Also, the Saudis want to know what the US bottom is. What price will it take for the US to actually cut production and stop drilling. They're just going to force the answer to the question that everyone kind of wants to know.

No one wants to give up market share, Saudi isn't unique in that thinking. Saudi is just one of the few countries that can tolerate low prices the best. Saudi wants more of the Asian markets and can tolerate low oil longer than their ME neighbors. The US shale boom will suffer, but our government doesn't depend on high oil to balance our budgets quite like much of OPEC does. Plus we still import a lot of oil so lower prices isn't the worst thing to happen.

So it'll hurt the industry for a while, but the country will be okay. That is not the case for Russia and others. Major fields in the ME are in decline, so Saudi can't keep a glut of supply for long, but it'll be long enough to hurt some other countries.

A real race to the bottom, to squeeze your competitor to submission. Could really hurt allot of the TX boom in business were seeing all over Texas.

The market and industry need the clean up. Weak shale (pun) fail, the strong survive. If it dips into the 70's there will be a whole new set of momentum selling.

Small independents and service companies are going to get hit hard.

There's a branch off of this going on in the Houston board regarding the real estate market and the effect it would have on home prices and whatnot.

http://www.forbes.com/sites/christopherhelman/2014/10/15/the-oil-patch-prince/

Interesting article. Not necessarily related to this thread, but I thought you guys might enjoy it.

That's article is the fairy tale story of the rich getting richer!

For the TLDR crowd, the article is about the CEO of Parsley Energy, son of the CEO of Pioneer, and Grandson of a very successful Texas Oilman. To his credit he took the 109 wells gifted to him by the grandfather, learned the opportunity available in the Wolfcamp/tight oil space in the Permian and bought up leases when others overlooked it or panicked in the 08-09 recession.

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Small independents and service companies are going to get hit hard.

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Not necessarily they may do better....if they are drilling vertical wells they are going to have a cheaper cost of recovery and a lot less overhead...the mid majors in shale plays will take the biggest hit imo...I agree on service companies but they needed alignment as they have gotten too high

I work for an oilfield service company in Midland and obviously we are busier than ever. Operators keep telling us business as usual. From the people I have spoken to at operators they will begin having meetings next week. It is going to get real interesting and I can definitely see people starting to panic and asking questions. I can see the Permian maybe going towards more vertical wells like back in 2010. When I started in 2010 we were doing 90% vertical work now we are doing 99% horizontal work. In my opinion we wont hit a bust like in 2008 but we were over due for a "correction". Time will tell.

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Just asking out of curiosity, if the $WTI/$Brent ratio rises above 1, will this have any effect on decision making by the powers that be? It appears that this hasn't been Q1 of 2010. Or I guess the better question would do these two benchmarks have any significant effects on one another?

*Question being asked by someone who knows very little about O&G markets

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Historically WTI traded at a small premium to Brent as it is a higher gravity oil. Since WTI (or any domestic U.S. oil) cannot be exported, there has been an oversupply of WTI to refiners. Brent has been trading at a premium because it can be sold anywhere in the world whereas WTI is limited to the U.S. As the U.S. refiners purchase cheaper WTI and domestic production, it leaves more Brent or foreign production on the global market which drives the price of Brent down. Brent will stay higher than WTI until the U.S. allows the export of domestic oil or until there are more sellers than buyers of Brent.

I don't know if this will help, but I'll try to draw a parallel. Imagine gold buyers want to buy 16K gold. Gold smelters use 50% 18K gold and 50% 14K gold to make make this 16K gold. Typically 18K gold was worth more than 14K gold because it had more gold content. However, gold production changed and the country with most of the gold smelters started producing a lot more 18K gold. This country doesn't allow the export of this 18K gold, so the smelters in this country can actually buy the 18K gold cheaper than the 14K gold on the world market. The 18K gold will remain cheaper than the 14K gold until the 18K gold can be exported to smelters in other countries. 18K gold = WTI and 14K gold = Brent.

To answer your question, the $WTI/$Brent ratio doesn't really make a difference on decision making. Many U.S. oil producers have been trying to get the ban on crude exporting lifted so that the U.S. can get more money for its domestic oil, but there doesn't seem to be much progress.

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Small independents and service companies are going to get hit hard.

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Over-levered oil companies and the service companies that work for over-levered are going to get hit.

Warren Buffet says in any profitable business sector you start with the innovators, then you get the imitators, then get the incompetents. We have way too many incompetents in west Texas driving up prices for the innovators and imitators. We need a dip to clean out the incompetents.

Appreciate the explanation; your analogy helped.

Looks like the experts are saying $80 min.

http://www.nasdaq.com/article/is-the-oil-price-slide-nearing-an-end-cm403101

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Looks like the experts are saying $80 min.

http://www.nasdaq.com/article/is-the-oil-price-slide-nearing-an-end-cm403101

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lord i hope so, $80 won't effect MUCH in the way of drilling

Article believing it could go lower

This article is out of BBC, but it hits on the overall aspect of the slide. I found the breakeven numbers the most interesting in this article. Are those numbers accurate?

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Small independents and service companies are going to get hit hard.

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Not necessarily they may do better....if they are drilling vertical wells they are going to have a cheaper cost of recovery and a lot less overhead...the mid majors in shale plays will take the biggest hit imo...I agree on service companies but they needed alignment as they have gotten too high

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WTI was sub $80 yesterday