What exactly are the Saudi's gaining by not cutting production? I've read the previously posted reports about their ability to turn at a profit at very low prices. But they're poking the bear, no?

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What exactly are the Saudi's gaining by not cutting production? I've read the previously posted reports about their ability to turn at a profit at very low prices. But they're poking the bear, no?

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They don't lose market share. And they already tried the cutting production game once and it backfired horribly.

Supply and demand has to work itself out.

Natasha is absolutely correct. It's ALL about supply and demand . Like EVERY oil crisis ( except the gas crisis of Jimmy Carters making) all of our booms and busts are caused by the un breakable law of supply and demand .
There by too much oil chasing too few customers... Simple. It will work out... Always does .. But it's always too damn painful.

A relatively strong dollar is hurting oil prices right now too, though it's mostly supply and demand.

nm

that rumor has been around forever. it came up during the last slow period in 09-10 and is back again. i doubt seriously it would happen, especially given their exposure to spill claims that they keep losing appeals to.

Yeah I actually read back a few pages and saw it mentioned. Just wondering what you guys who are smarter than me thought about it seeing as I work for one of the companies

The difference between the S&D argument this time around this the quality of imported crude vs the quality of domestic production. We are bringing online mostly LLS, not heavy crude like Venz and a lot of South America and Western Africa along with Canada produce. We have basically cut our imports from Nigeria alone to almost zero.

S&D works in a perfectly competitive market. This isn't anywhere near a competitive market right now. For everyone saying this is a "market share preservation" move, the economics of that argument are completely unsound. The Saudi's were already having to prop up production and the other members have never stuck to the quota anyways. EVERY country would like an isoquant production level with a higher price, the difference is (mostly) the Saudi's only have the ability to play hardball in the short run. By vetoing the last production cut, they have now sent their neighbors (and Russia) the middle finger, and told them balancing their domestic budget's isn't Saudi's problem. That is nothing more than Saudi putting on the Putin face. They can say them and the market don't need a production cut, and that is true. However, it doesn't mean that the financial consequences of the action won't have dynamic political consequences that result in an even more fractured set regional financial relationships.

I called $65 in July. I called a bottom this week. Long term I think the bottom will level around the $60 range, and stay there until you have more news. The financial notion that oil tanks back to $40 is sound, but the political underpinning oil's pricing makes that possibility very unlikely. You will see the Gulf States turn on each other like jilted lovers before the political establishments let the Saudi's impact their domestic policy.

Unbelievably high quality analysis by 76. Thanks for sharing. It is posters like you that make texags what it is.

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Yeah I actually read back a few pages and saw it mentioned. Just wondering what you guys who are smarter than me thought about it seeing as I work for one of the companies

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i'm not that smart, and i work for one of them as well

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Yeah I actually read back a few pages and saw it mentioned. Just wondering what you guys who are smarter than me thought about it seeing as I work for one of the companies

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i'm not that smart, and i work for one of them as well

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I'm working on the drilling services side and I'm pretty nervous about all of this. These wells we're in up here in OK usually take about 70 days to drill, so hopefully that'll keep me in work for a bit longer. Last one I was on was 125.

Had an interesting conversation with one of our lead CHESM folks yesterday. He was pretty doom and gloom about where the sector is headed. Basically said it's already getting ugly for some of the contractors, and only going to get worse.

He made reference to some big moves coming at BP as well.

BP News - Job Cuts and Restructuring

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Had an interesting conversation with one of our lead CHESM folks yesterday. He was pretty doom and gloom about where the sector is headed. Basically said it's already getting ugly for some of the contractors, and only going to get worse.

He made reference to some big moves coming at BP as well.

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CHESM?

I work for an Oil & Gas subsea manufacturing company that provides equipment for the offshore services sector.

We initially started looking at our 2015 order intake budget forecast back in October. We were already looking at a slower 2015 in comparison to 2014. But there has been an expected up-tick that would come in 2016 and 2017.

Since then, the price of oil has dropped significantly. Based on feedback from our customers in the past 2 weeks we are now downgrading our forecast for sales for 2015 in a big way. Nobody believes that the lower oil price is permanent. The expectation is that it will rise back up considerably in the next 6-18 months.

The overall consensus is that offshore/subsea projects that already are set in motion with funding and contracts will continue. Its the new projects that will be put on hold. I would expect to see sales in this sector to be very slow in the back half of 2015. This is how the industry gets "day rates" to drop. They put a job on "hold" for a few months and then go back out to tender. The hungry industry responds with lower day rates to get the job.

The semi-good news is that there is a potential for the low oil prices to be short lived. The balance between the glut in global oil supply vs the lower global oil demand is not that significant. Political unrest in a volatile world in any of the countries below could drastically affect the global oil supply and change the dynamics.

Meanwhile, I hope my company and yours can ride out this wave without lay-offs. Just need to tighten belts on expenses in other ways and the sales teams need to work hard to capture the business that is left.

That's a good graph, so much is made of Saudi's lifting costs and their complete welfare state that is based off of oil revenues is forgotten.

Libya might be a tad bit screwed for a while

What's the story with Linn Energy. They have a huge dividend and this thing is trading like company is going under.

EOG is closing its offices in downtown Calgary (150 people cut). This may have been in the works before oil dropped.
Total also cut about 100 people.
Spring in Alberta is going to be ugly.

That just about everybody in the business expects oil to recover in 6-12 months tells me it probably won't.

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EOG is closing its offices in downtown Calgary (150 people cut). This may have been in the works before oil dropped.
Total also cut about 100 people.
Spring in Alberta is going to be ugly.

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Yes

Can anyone really give sound reason for the prices to go back up substantially? Personally, I think we've seen the last of $100/bbl for a very very very long time.

AngryAg.....
I've been thru (painfully) EVERY downturn in our industry since the 80's bust and in EVERY one the " experts" ALL regurgitated that pablum about 6-12 months and they were 100% wrong in every case. Recoveries are always a hellova lot slower than the bust. Even if the price of oil recovers hiring and spending always lags. My entire focus is ONLY about O&G people's jobs and futures. Couldn't give a whit about investors or who is shorting or all that crap. I only care about the productive people's jobs and families.

76 - where do you see the bottom at?

OA76

I'm in the business, on the front lines, in the courthouses and kitchen tables. I appreciate your post and concern. I'm taking steps to prepare.

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AngryAg.....
I've been thru (painfully) EVERY downturn in our industry since the 80's bust and in EVERY one the " experts" ALL regurgitated that pablum about 6-12 months and they were 100% wrong in every case.

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Except in '09. So 50% of the time they were right. Unless you count the Gulf War cycle, then you've been through 3 downturns instead of 2.

Oil is a cyclical business. There's a reason people in the oil business were making stupid money over the last few years. There's a reason a single number on the roulette wheel pays 35 to 1. It's not a stable business in the long-term, but you can run a stable oil business if you plan for the full cycle, not just the booms. Oil prices will drop, service prices will drop, and when they both bottom out there will be attractive margins. High school dropouts will be making $26,000/year instead of $100,000/year. Petroleum engineers will be paid like civil engineers again. The industry needs a downturn to clean out the incompetents. It's only a painful cycle if you work in a cyclical business and don't plan for the cycles.

Saudi: Why should I cut production?

WTI in a free fall...

http://www.bloomberg.com/news/2014-12-10/saudi-arabia-says-why-should-i-cut-production-as-crude-falls.html

WTI to break into the 50s today

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What's the story with Linn Energy. They have a huge dividend and this thing is trading like company is going under.

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Dan, the guy running Linn is Mark Ellis class of "79" who was one year behind me in petroleum engineering and probably the smartest guy in that class. So I asked my professional investors to look into it for my account. They came back with a frightening analysis about 2 years ago. Just recently they bought me Apache and Slumberger instead.

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EOG is closing its offices in downtown Calgary (150 people cut). This may have been in the works before oil dropped.

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Yes

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close or sell?

They sold most of their Canadian assets. Closed their office.

This was in the works pre-oil drop.

OA76. Great thread.

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Saudi: Why should I cut production?

WTI in a free fall...

http://www.bloomberg.com/news/2014-12-10/saudi-arabia-says-why-should-i-cut-production-as-crude-falls.html

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"This is a market and I'm selling in a market. Why should I cut?," Naimi said. Asked if the market will correct itself, he said "that is what markets do."
Asked if he was worried about the market, he said, "do I look worried?"

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Ummm...yeah this guy has his foot on the pedal and isn't stopping anytime soon.

Is he referencing Ron Washington?
"sometimes that the way markets do"