Did Oil Finally Bottom? [Transocean LTD, Seadrill Ltd, SandRidge Energy Inc., Halliburton Company]

crudeoilDan Hassey: Before the OPEC meeting on Nov. 27, lots of reports and rumors suggested the Saudis were trying to punish Russia because of its support of Syria and Iran.

The Saudis (Sunnis) were trying to hurt Iran, Syria, Hamas and Hezbollah (Shiites) by starting a price war with U.S. shale oil producers.

They did this by shorting oil and oil stocks while they were lowering their prices … and then buying before the OPEC meeting.

They probably knew there would be no production cuts announced at that meeting and that oil prices would tumble Friday.

However, they may not have counted on those prices recovering more than 4% in Monday’s trading, either.

What is becoming more evident is that Saudi Arabia and OPEC no longer have the pricing power to control oil prices they once had.

In fact, after this recent meeting, OPEC could very well have sealed its fate as an entity no one will take seriously anymore.

Why We Could Still See Oil Production Cuts

Of the top five oil producers in the world, only one is an OPEC member: Saudi Arabia.

What the Saudis are telling the world amidst their power play is that they are no longer going to do the heavy lifting to keep oil prices stable.

Source: U.S. Energy Information Administration
The above numbers in barrels per day include natural gas liquids. There is always about a two-year lag of global oil data as collecting data from global energy producers is difficult.

The oil-producing countries that benefit most from high, stable oil prices are the U.S., Russia, China and Canada.

The rest of OPEC needs the oil revenue, and any cuts they make actually won’t make that much of a difference.

With Saudi Arabia standing up for itself and keeping its production targets intact, it is now up to the U.S., Canada and Russia to cut their production on their own to try to help bring up prices.

Most likely, the U.S. and Canada will probably cut theirs because of capital expenditure, allocation decisions and financial incentives.

Energy producers cut their production in 2008 and 2009 when the global economy went into a recession. OPEC cut its production by about 4 million barrels per day.

Consider what happened in the natural gas market just two years ago.

Back in 2012, when natural gas prices collapsed to $2, natural gas producers cut their production. They also shifted their efforts and capital spending to oil and natural gas liquids.

Pages: 1 2 3 4

Leave a Reply

Your email address will not be published. Required fields are marked *