Oil Magnate T. Boone Pickens: Get Rid of OPEC

 

T. Boone Pickens, chairman and chief executive officer of BP Capital LLC, talks about U.S. energy policy, the results of the midterm elections, the Keystone XL pipeline project and the outlook for oil and natural-gas prices. Pickens speaks with Matt Miller and Stephanie Ruhle on Bloomberg Television's "Market Makers." (Source: Bloomberg)

CRUDE AWAKENING: Deloitte on Crude Oil Price Slump

INSIGHTFUL ARTICLE BY DELOITTE: What has caused the sudden fall in oil price? What effect will this have on the industry? Who will be the winners and who will be the losers? This article by Deloitte examines the impact plummeting crude oil price will have on company finances.

 

Here are some excerpts:

 

The collapse of crude oil prices in the second half of 2014 caught many by surprise. The price of Brent crude fell more than 50 per cent from $115 per barrel (bbl) in June to below $50/bbl by early January in 2015 and shows no sign of reaching the bottom just yet.

 

The last fall of this magnitude was during the financial crisis: in July 2008 prices were approaching $150/bbl, but had plummeted to below $50/bbl by the end of the year.

 

Why has this happened? Because supply growth…

 

Can shale survive in a lower-price environment?...

 

The impact of falling oil prices on oil company finances

 

The oil price collapse has given rise to

Opec's new strategy: Abandoning short-term market management and defendi...

 

Join Samira Kawar, Argus Middle East Editor, and Francis Osborne, Head of Forecasting - Consulting, as they discuss:

The reasons behind Opec's decision to maintain its 30mn b/d output ceiling despite a mounting supply glut
Saudi Arabia's role in developing Opec's new strategy of defending market share rather than defending price
Saudi Arabia's bid to drive shale oil producers and producers of expensive reserves off the market
Differences within Opec regarding the new policy of defending market share and allowing the market to find a new price floor
The future of Opec and whether or not it can survive
The challenges that oil producers face as a result of lower oil prices
The question of whether or not Saudi Arabia's promotion of a new strategy that centres on defending market share was politically motivated

The Gulf Intelligence UAE Energy Forum 2015 “Outlook for Oil Prices 2015...

 

The 6th Gulf Intelligence UAE Energy Forum 2015

Interactive Survey: "Outlook for Oil Prices 2015"

Christof H. Rühl, Global Head of Research, Abu Dhabi Investment Authority
Sean Evers, Managing Partner, Gulf intelligence

Prince Alwaleed: We'll Never See Oil at $100-Plus Again

 

Kingdom of Saudi Arabia’s Prince Alwaleed Bin Talal discusses the expectations for the reign of King Salman, Saudi Arabia’s new ruler. He speaks with Erik Schatzker on “Market Makers.”

Why Fracking & Tar Sands are Doomed: Low-Cost Oil and Pollution

Here is a brief primer on the real implications of the decline of oil prices and environmental degradation on the unconventional petroleum industry (fracking, tar sands and deep-water drilling). Oil has been relatively inexpensive, energy intensive, portable, relatively safe, convertible to myriad uses – an incredibly useful substance, especially in regard to transportation. In the US, and globally, oil powers virtually all movement of people and goods, and is the source of many products. It appears to many people to be essential.

Oil comes in at least these categories:

· Conventional oil: vertically drilled wells on land or shallow continental shelf. Conventional oil, worldwide, is past its peak of production (it peaked in 2005-8 per the International Energy Agency), and oil production is declining at an average rate of 5.8% per year (Whall and Nelson. Investec. “Global oil supply: the decline rate problem” 2/2014, page 11).

· Unconventional oil comes from oil-laden shale, requiring vertical and horizontal drilling, and also requiring hydraulic fracturing, or “fracking”. It is more expensive to produce than conventional oil. Unconventional oil appears to be in a state

Oil boomtown on the brink?

CNNMoney visits the Bakken oil play in North Dakota to see how low oil prices are affecting the industry and the towns.

Recriminations fly as North Sea oil industry struggles

The fall in oil prices is causing angst in the UK oil industry, which emerged in the 1970s as a response to the Middle East’s lock on production but is now plagued by high costs, high tax and infrastructure problems. Lobby group Oil and Gas UK warned this month that 20% of the country’s oil production could be shut in this year, or nearly 200,000 b/d of capacity, as the price collapse of the last few months compounds pre-existing problems.

But the UK Treasury accused the organization of doing down its own industry, suggesting it risked undermining investor confidence. In response to the price collapse, the government has started to row back from a 12 percentage point tax hike that it introduced in 2011 to howls of outrage from the industry. However, it resists claims that the hike may have contributed to the North Sea’s decline and maintains there is life in the industry yet.

The Treasury has said it is moving forward with plans to simplify the country’s labyrinthine system of upstream taxation by introducing

US Spillover effect: Oil price crash bankrupting 'small oil'

Sherri McDaniel is already feeling the sting of the drop in crude oil prices from more than $115 per barrel in June to less than $50 in early January. She is president of ATEK Access Technologies, a small Minneapolis firm that owns TankScan, a wireless monitoring system that keeps track of fluid levels in oil tanks. Oil companies that use the system are starting to postpone orders, as they take a cautious approach to spending.

"In the oil fields, they are starting to pull back pretty heavily," McDaniel said. "They are literally taking tanks and laying them down on their sides." As a result, she explained, "we have a number of big orders that are temporarily on hold."

ATEK Access Technologies is one of many small and midsize firms that are already feeling the effects of lower oil prices. The causes of the decline are complicated, but they are an outgrowth of the domestic shale oil boom and a decision by OPEC, the cartel of oil-producing countries, not to rein in its own oil production in response. The result has been a price war.

Daniel Yergin: Who Will Rule the Oil Market?

WASHINGTON — A HISTORIC change of roles is at the heart of the clamor and turmoil over the collapse of oil prices, which have plummeted by 50 percent since September. For decades, Saudi Arabia, backed by the Persian Gulf emirates, was described as the “swing producer.” With its immense production capacity, it could raise or lower its output to help the global market adjust to shortages or surpluses. But on Nov. 27, at the OPEC meeting in Vienna, Saudi Arabia effectively resigned from that role and OPEC handed over all responsibility for oil prices to the market, which the Saudi oil minister, Ali Al-Naimi, predicted would “stabilize itself eventually.” OPEC’s decision was hardly unanimous. Venezuela and Iran, their economies in deep trouble, lobbied hard for production cutbacks, to no avail. Afterward, Iran accused Saudi Arabia of waging an “oil war” and being part of a “plot” against it.

By leaving oil prices to the market, Saudi Arabia and the emirates also passed the responsibility as de facto swing producer to a country that hardly expected it — the United States. This approach is expected to continue with the accession of the new Saudi king, Salman, following the death on Friday of King Abdullah. And it means that changes in American production will now, along with that of Persian Gulf producers, also have a major influence on global oil prices. America was once, by far, the world’s largest oil producer and exporter, and its swing producer. The Texas Railroad Commission determined “allowable” levels of production for Texas, the Saudi Arabia of the day. But by 1970, United States oil production had reached its high point of 9.6 million barrels per day and began to decline.

Low Oil Prices and Fuel Subsidies: Doing Away with Really Bad Energy Policy

 Low oil prices are the talk of the day in environmental and energy circles. Some environmentalists probably despair over rising gasoline consumption and SUV sales in America, while others note that low prices reduce the profitability of extracting oil and gas from unconventional sources, such as as tar sands. Yet others discuss the possibly negative effects of low oil prices on clean energy.

For policymakers in emerging economies, low oil prices present an important opportunity to remove environmentally destructive and economically costly fuel subsidies. Just a week ago, The Economist advised pollicymakers to “seize the day” and use the opportunity afforded by low oil prices to rationalize the pricing of gasoline, diesel, and other fossil fuels.

It’s easy to see why this is important. According to the International Energy Agency, annual subsidies to fossil fuels now total a whopping USD 550 billion per year.

The Cure For Low Oil Prices Is Low Oil Prices

Over the course of 2014 the prices the world paid for crude oil tumbled from over $125 per barrel to around $45 per barrel now, and could easily drop further before recovering for a time to then begin the cycle of boom and bust all over again . You get the idea. In the end, the wild whipsawing of the oil market, and the even wilder whipsawing of financial markets, currencies, the rolling bankruptcies of energy companies, followed by the entities that financed them, then national defaults of the countries that backed these entities, will in due course cause industrial economies to collapse. And without a functioning industrial economy, crude oil would be reclassified as toxic waste. But that is a few decades in the future.

In the meantime, the much lower prices of oil have priced most of the producers of unconventional oil out of the market. Recall that conventional oil (the cheap-to-produce kind that comes gushing out of vertical wells drilled not too deep down into dry ground) peaked in 2005 and has been declining ever since. To make the statistics look better, resources that aren't actually oil were counted as oil. Biofuels (ethanol and biodiesel) were counted without adjusting for the fact that the net energy (after subtracting the fossil fuels used in producing them) is quite small. Natural gas plant liquids, lease condensate (low-grade gasoline from gathered vapor) and “refinery gain” (volume expansion that does not add energy) were counted as well to make the numbers tell a better story.

To be sure, there were some actual production gains as well. The production of unconventional oil, including offshore drilling, tar sands, hydrofracturing to produce shale oil and other expensive techniques, was lavishly financed in order to make up for the shortfall. But in spite of all these efforts, oil prices went up and stayed stubbornly high, hovering around $100/bbl. And then they dropped. Explanations for this abound, including some very interesting geopolitical theories. But the simplest explanation that may in the end prove sufficient is that consumers, when faced with the consequences of $100/bbl oil, eventually run out of money and their consumption drops. And if production isn't cut (and it isn't being cut for geopolitical as well as financial reasons) then a glut forms and prices collapse.

BP freezes pay of 84,000 staff globally as oil price drop bites

BP has frozen the pay of its 84,000 staff around the world in response to the plunge in the oil price, which has more than halved in the past six months.

Weeks after cutting 300 jobs in Aberdeen, the oil company’s boss, Bob Dudley, sent a memo to all its staff outlining the decision to hold salaries at last year’s levels because of the harsh trading environment.

BP is among major companies responding to the price fall, which has already led to Shell, Premier Oil and Norway’s Statoil taking steps to cut costs. Projects have been put on hold and contractors’ pay cut.

Performance-related bonuses were not included in Dudley’s memo to staff, which was sent in advance of the FTSE 100 company’s full-year results next week.

“The tougher external environment in 2015 means that our businesses and functions need to work … to take a number of measures in response to the harsh trading environment,” Dudley said, according to a memo reported by Reuters. “One of the measures we are taking across the group is a general freeze to base pay for 2015, with only a few exceptions for specific circumstances around the world.”

Dudley received $13.7m (£9.1m) in pay, annual bonuses, deferred bonuses and pension in 2013. His salary was increased by 2.8% to $1.8m, last year’s annual report shows.

The North Sea Brent crude benchmark is trading below $50 (£33.20) a barrel, its lowest level for more than five years, presenting challenges to oil producers that have based their business plans on the basis of much higher prices.

Cheap oil projected to kill many US LNG projects

Most of the proposed liquefied natural gas (LNG) plants meant to ship cargoes out of the US will “never be built” as the collapse in oil prices damps global demand for the nation’s gas, according to Sanford C. Bernstein & Co. With the long-term price difference between oil and gas converging, the US is no longer as competitive as it used to be, Bernstein analysts including Neil Beveridge in Hong Kong said in a report.  World LNG demand is set to increase by 9.8% to 268 million metric tons in 2015 after three years of slow growth as lower prices stimulate consumption in countries including India, they predicted.

“The LNG industry is suffering from an anxiety attack over falling oil prices and uncertainty around global growth,” said Beveridge. “We expect buyers’ appetite for US LNG to be diminished as they reappraise supply options in a lower oil price environment.”

Has the oil price found a floor?

 

The oil price has stemmed its slide in recent days. Anjli Raval, FT oil and gas correspondent, discusses with Neil Hume, commodities editor, the latest reports from Opec and the International Energy Agency and whether the outlook for oil remains bearish.

The latest global markets overview http://www.ft.com/markets

Click here for more FT Markets videoshttp://video.ft.com/Ft-Markets

The crude price plunge and LNG, a tenuous link

Over the last several months there has been much discussion about the impact of falling crude oil prices on the liquefied natural gas market. The conventional argument goes something like this: lower crude prices are making oil-linked LNG contracts cheaper and are putting pressure on the spot market as these contracts increasingly undercut spot prices.

At first glance, this argument appears quite compelling. On January 14, 2015, the price of Platts-assessed Dated Brent was $45.73/b. For buyers using 14.5% slope to crude, not uncommon in the Asia-Pacific market, that would equate to an LNG price of just $6.63/MMBtu. By comparison, the Platts JKM price (a spot index for the Asian LNG market) was assessed significantly higher at $9.38/MMBtu on the same day.

Taking a deeper look at the market, a more complex picture emerges in which crude prices have had, at best, a minor and mostly psychological impact on the spot market for LNG. In fact, during four of the last five months, the average price of the JKM has undercut the price of oil-linked contracts. The key to this mystery is, of course, in the details of contract-pricing.

For most buyers in Japan and South Korea, the world’s largest LNG consumers, the price of an imported cargo is calculated at a 14.5-15% slope to crude on a lagged “3-0-1” pricing formula. That sounds complicated. However, each of the digits in this formula is simple, signifying, respectively, the number of months used for averaging, the number of months to count back to the end of the lag period, and the number of months being priced.

2015 Oil and Gas outlook: What challenges are oil and gas players facing?

 

Strategy& senior partner Viren Doshi discusses the challenges facing oil and gas players in the current landscape of geopolitical uncertainty where there is less clarity around pricing and where supply exceeds demand. Looking ahead what should oil and gas companies expect?

Operators could see up to 40% in cost reductions- Wood Mackenzie

EDINBURGH, United Kingdom -- The drop in oil prices has led to an unprecedented level of uncertainty going into 2015, especially for the prospects of the North American upstream oil and gas sector. While there is a lack of consensus about when oil prices will stabilize and at what level, Wood Mackenzie expects service cost relief, asset high-grading, and efficiency improvements in operations.
"We are already seeing this play out as upstream operators announce drastically reduced capital budgets for 2015, yet forecast increased production growth (in aggregate), " says Delia Morris, senior North American upstream analyst for Wood Mackenzie.  " As long as operators can move to the core areas of plays and sub-play breakevens continue to fall with the drop in service costs, producers will keep chugging along until funding dries up."
The following are the key themes identified by Wood Mackenzie' s analysts for 2015, primarily focused on the upstream sector, but including notes on the prospects for North American LNG, NGL markets, and U.S. policy around Keystone XL and the U.S. crude export ban.

1. Upstream costs are the silver lining for operators: 

Encouragement for Oil, Gas Students Amid Downturn in Crude Market

Life’s not fair. For years, all you hear is that the energy industry is looking for a few – well, more than a few – good men and women. The need is dire; the industry is on fire, and a lot of older workers are about to ride off into the sunset. So, you do the work necessary to get the degree and the knowledge necessary for a high-paying job in the oil and gas industry … and then what happens? Just as graduation looms, and that first lucrative O&G job draws ever so near, the bloom is off the proverbial rose. What gives?

It’s understandable if the slide in crude oil prices seen in recent months has not only shaken up those in the oil and gas industry, but also you future energy industry workers currently ensconced within the ivy towers of academic institutions. You’ve been longing for a chance to make a difference … while also pocketing some long green. And just when it’s your chance to step up to the plate, the market begins to misfire. But are your concerns about your career choice warranted, or are you getting bent out of shape over nothing?

Why is OPEC important to the price of crude oil?

Major crude oil producers

The first thing people need to know about crude is the producers. The major crude oil producers these days are Russia, Saudi Arabia, and the United States. The top ten oil-producing countries hold a market share of ~64% of crude oil production in the world.

The fall in crude oil prices impacts all the oil producers in these countries. Crude oil prices directly impact the revenue of US oil producers such as ConocoPhillips (COP), Anadarko Petroleum (APC), Apache Corporation (APA), and Pioneer Natural Resources (PXD). These companies are all part of energy ETFs such as the Energy Select Sector SPDR (XLE). Crude oil prices also affect the revenue of Saudi Aramco, Saudi Arabia’s largest oil company, Gazprom in Russia.

 

Organization of the Petroleum Exporting Countries (or OPEC)

Iran, Iraq, Syria, Kuwait, Saudi Arabia, Bahrain, Qatar, the United Arab Emirates (or UAE), Oman, and Yemen are members of the Organization of the Petroleum Exporting Countries (or OPEC). OPEC was formed in 1960. OPEC countries produce 40% of the world’s crude oil.

Seven sisters

Between 1940 and 1970, the following seven major oil companies dominated the oil market:

$50 Per Barrel May Be The New Ceiling For Oil Prices

If one number determines the fate of the world economy, it is the price of a barrel of oil. Every global recession since 1970 has been preceded by at least a doubling of the oil price, and every time the oil price has fallen by half and stayed down for six months or so, a major acceleration of global growth has followed.

Having fallen from $100 to $50, the oil price is now hovering at exactly this critical level. So should we expect $50 to be the floor or the ceiling of the new trading range for oil?

Most analysts still see $50 as a floor – or even a springboard, because positioning in the futures market suggests expectations of a fairly quick rebound to $70 or $80. But economics and history suggest that today’s price should be viewed as a probable ceiling for a much lower trading range, which may stretch all the way down toward $20.

To see why, first consider the ideological irony at the heart of today’s energy economics. The oil market has always been marked by a struggle between monopoly and competition. But what most Western commentators refuse to acknowledge is that the champion of competition nowadays is Saudi Arabia, while the freedom-loving oilmen of Texas are praying for OPEC to reassert its monopoly power.

Now let’s turn to history – specifically, the history of inflation-adjusted oil prices since 1974, when OPEC first emerged. That history reveals two distinct pricing regimes.

The End Of OPEC As We Have Known It Is Here?

Early last fall, when oil prices had fallen by about $25 a barrel and it became clear the decline was more than a temporary blip, the big question was how far prices would fall. And that would depend on whether and when Saudi Arabia and its OPEC partners would support the world oil price by cutting their own production. By this winter we had an answer. The Saudis have made it clear, by what they have said and what they have not done, that they want the US and others to cut production before they do any cutting of their own. This is the end of the Organization of the Petroleum Exporting Countries as we have known it, and it will keep the global oil market chaotic for some time. 

On Tuesday, oil prices fell further after the United Arab Emirates’ oil minister said OPEC would keep output unchanged. Markets will adjust to this new situation, but not very quickly. And most of the adjustments will have to come from lower oil production because consumption depends largely on the level of fuel efficiency of today’s vehicles and planes, and that’s unlikely to change anytime soon.

Thus, most of the adjustment will have to come from the supply side of the market, where low prices could force some high cost fields to shut down earlier than planned and cause many new drilling projects to be abandoned. Most of the world’s new oil production has come from

Russia Is Losing Control Over The European Gas Market?

Oil isn't Russia's only problem. 

The energy exporter is losing its dominance over the European gas market.

Two factors used to keep  Russia as the major gas powerhouse: European policies and cold winters.

But both of those things have changed — and Russia is starting to explore non-Western countries.

Europe Is Making Bold Moves

Back in 2009 the European Union passed the Third Energy Package, which said Russia could not both own and control pipelines on the EU territory.  (Russia filed a lawsuit with the World Trade Organization against the EU over this in April, after the first rounds of Western sanctions.)

Additionally, the EU has been putting taxpayers' money into new inter-connectors, so if Russia decides to cut off supplies, the affected countries can still get gas from somewhere else, according to The Economist. 

This is a major move because in the past Russia punished countries by cutting off gas.

Ukraine's gas was shut off for six months in 2014, as well as at times in 2006 and in 2009, and Latvia and Lithuania were punished by Moscow " for their alleged mistreatment of Russian minorities or for awarding refinery or construction contracts to European rather than Russian companies."

T he  Economist also cites  the following changes in Europe : 

• Lithuania started importing liquefied natural gas from Norway.
• Ukraine is importing more gas from the West.
• The EU has brokered a deal on debts and prices between Ukraine and Russia, which will keep gas going to Ukraine at least for the first quarter of 2015.

To cap things off, in December lack of funds forced Russia to cancel the South Stream pipeline  to supply gas to Europe without crossing Ukraine.

Oil price crash threatens the future of the North Sea oilfields

The potential impact of the oil price slump on Scotland was underlined as a leading energy expert warned on Wednesday that North Sea oilfields could be shut down if the oil price fell by just a few more dollars. The rising sense of crisis about the plummeting price – which has fallen 60% in the last six months – prompted the Scottish government to promise an emergency taskforce to try to preserve jobs in the offshore energy sector.

Meanwhile, Mark Carney, the governor of the Bank of England warned that the Scottish economy was heading for a “negative shock”. The oil industry consultancy Wood Mackenzie said that at the current price for Brent blend, of $46 a barrel, some UK production was already failing to break even, and further falls could endanger output. Robert Plummer, a research analyst with the firm, said that at $50 a barrel oil production was costing more than its value in 17 countries, including the US and UK. Plummer told Scottish Energy News: “Once the oil price reaches these levels producers have a sometimes complex decision to continue producing, losing money on every barrel produced, or to halt production, which will reduce supply.”

Question: Why's the Oil Price Collapsing? Answer: $8+ Trillion Carry Trade

 

Most in the media are utterly clueless about what's coming in 2015. It is incumbent upon ATCA 5000 to clarify the situation as we did prior to the start of The Great Reset and The Great Unwind during 2007-2008 based on our global intelligence gathering, detailed scenario planning and mathematical modelling of capital allocation and trans-national flows:

1. The price of oil has fallen by more than half from its recent peak in mid-2014 and continues to remain in relative free fall in 2015;

2. The US dollar, in which oil is denominated, is soaring against almost all asset classes and currencies to break its multi-year trend range; and

3. The world's financial system remains on a dollar standard, not a euro, yen, sterling or renminbi standard. Majority of global loans continue to be in dollars.


What Connects These Three Key Dots?

You will have read about the oil price fall, OPEC, shale fracking, oil glut, Saudi Arabia, Iran, Russia, energy supply and demand, geo-strategy and geo-political risk, alongside myriad conspiracy theories. They all may have some truth in them, but they are relative side issues against the major story that ought to be followed and dissected: the explosion of the near $8+ trillion US dollar carry trade.

Of that $8+ trillion, $5.7 trillion is emerging market dollar debt, a global reserve currency those countries can neither print nor control. Dollar hard-currency debt of emerging market economies has tripled in a decade, split between $3.1 trillion in bank loans and $2.6 trillion in corporate bonds. In the last two hundred years, very few cross border lending binges equate in size and scale to this dollar denominated debt colossus fuelled by first world quantitative easing on an unprecedented scale and with near Zero Interest Rate Policy (ZIRP).

 

What is the carry trade?

How The Price Of Oil Could Fall To Just $20 A Barrel

                             

 Oil prices are plunging even lower today. WTI crude is down below $50 per barrel for the first time since 2009. That's already down by more than half since the beginning of 2014, a development almost no one saw coming. It begs the question: What is the lowest possible low for oil right now?
One answer — which will terrify countries that are big oil-producers like Russia and Venezuela — is that there's no insurmountable reason that oil couldn't sink as low as just $20 a barrel. It's already been there, after all.
Fifty dollar oil is already having an amazing effect: Russia's ruble has gone through the floor, and that nation is now in an economic crisis because of it, Venezuela is also in a major political and economic crisis, and the tumbling prices are likely to drive the eurozone into deflation soon, if they haven't already. On the upside, almost every advanced economy in the world will enjoy a bit of a growth premium this year, and lower petrol prices should lift consumption. Businesses will likely get increased margins out of lower transport costs, too.
Here's what's happened so far:

Despite lower 2015 capex, could continued oil output gains delay price recovery?

Upstream operators that released 2015 preliminary capital budgets a few months before the year-end holidays have returned to the surgical table for more fiscal liposuction on already slender frames.  Despite this, they and other producers insist they can continue to grow oil production this year, and for some, growth will be in the double-digits.

Last week alone, small producers Halcon Resources, Sanchez Energy and Concho Resources all slashed projected 2015 capital spending by 48%, 29% and 33%, respectively.  In some cases this was the second revision from preliminary figures announced before oil prices began their steep descent to current levels below $50/b.

They are not alone.  Even the bigger players such as Continental Resources, a big Bakken Shale producer, said in late December its capex would be 41% lower than contemplated in early November when prices were still in the high $70s/b range, while ConocoPhillips will shave 20% off its budget compared to last year.

Of course, the budgetary chopping block is a response to oil prices that have plunged more than 50% in recent months, a drop particularly after OPEC opted in late November not to cut its production.  The price of oil is still below $50/b, down from a recent peak of $107/b in mid-2014.

But production will still continue to grow for all these operators:  Sanchez expects 40% higher output this year than last; for Concho, it’s 16-20% more; Halcon’s should come in at more modest 4% higher.  Continental expects 16-20% higher production in 2015, although its earlier budget had projected 23-29% output growth, and ConocoPhillips pegs its output growth at 3%.

These are impressive production yields, although the smaller companies are coming off a lesser output base.  For example, at ConocoPhillips’ estimated 1.53 million b/d of average oil equivalent production for 2014, 3% growth spells an extra 46,000 boe/d of hydrocarbons on the market.  (Important to note: companies’ production jumps are for oil, natural gas and gas liquids, although for most companies these days the bulk of output is liquids, largely oil.)

Still, amid the bare-bones budgets is one key issue:  will the continued gush of wells delay the price recovery?  

Oil above $100? Never again, says Saudi Prince Alwaleed

NEW YORK (MarketWatch) — A well-known Saudi prince is making a big call on oil, saying that the $100-a-barrel threshold will never be topped again.

“If supply stays where it is, and demand remains weak, you better believe [the price of oil] is gonna go down more. But if some supply is taken off the market, and there’s some growth in demand, prices may go up. But I’m sure we’re never going to see $100 anymore,” said Prince Alwaleed bin Talal, the billionaire Saudi businessman, in an interview with Maria Bartiromo of Fox Business News published in USA Today.

“I said a year ago [that] the price of oil above $100 is artificial,” Alwaleed said. “It’s not correct.”

Oil has tumbled more than 56% from its June 2014 high of around $107 a barrel, with Nymex WTI futures CLG5, -1.89%  on Monday trading below $47 a a barrel for the first time in nearly six years. Also see: Oil’s slump could upend $2 trillion in investments: Goldman Sachs

A combination of weak growth in oil demand and a global supply glut have kept pressure on crude prices,

The Economic Impact of Falling Oil Prices: "Expansionary Disinflation"

Expansionary disinflation- according to the author (John Hartley)- is the trend of economic expansion and falling inflation.

“Forget about the “secular stagnation” theory of an ailing U.S. economy. Accordingly to the Labor Department, payrolls grew at a seasonally adjusted increase of 242,000 in December adding to the soaring U.S. job growth of 2014 which represents the strongest annual job creation since 1999. The unemployment rate also fell to 5.6% in December, down from 7% a year earlier and far below predictions made by economists at the beginning of 2014. In addition, the past 2 quarters of GDP growth have been well above an annualized 4%. What complicates this rosy picture however for the Federal Reserve and its dual mandate is that core CPI inflation has fallen to 1.3%, well below the Fed’s 2% target and will likely continue to fall given the recent significant decline in the price of crude oil, an input to several products included in core inflation. The trend of economic expansion and falling inflation (“expansionary disinflation”) may exacerbate if oil prices continue to fall bolstering what economists would call a “positive supply shock”.

This is an article which focuses on a potential dilemma for the US economy in the wake of crashing prices.

According to John Hartley, “While most declines in inflation coincide with economic stagnation, the U.S. is experiencing a rare event: falling inflation (disinflation) and economic expansion. The current low inflation expansion (“expansionary disinflation”) economy is the complete opposite of the 1970’s stagflation that was characterized by

Riyadh's Oil Play: Why the Kingdom is Keeping Prices Low

On Monday, a Saudi general and two border guards died in a shootout along the Iraqi–Saudi Arabian border with fighters thought to be members of the Islamic State of Iraq and al-Sham (ISIS). The attack—the first against Saudi Arabia since it joined the U.S.-led coalition against ISIS—came amid uncertainty both at home and abroad, over questions surrounding the health of 90-year old King Abdullah, who is in the hospital battling pneumonia, and over the global price of oil.

Oil prices recently dipped below $50 per barrel for the first time since May 2009. Observers have attributed the drop to both an increase in supply, resulting from the shale revolution in the United States, and a decrease in demand, owing to sluggish global growth. All eyes have been on the Kingdom, which houses roughly 73 percent of the world’s proven oil reserves, to cut back its production and help stabilize prices. But Riyadh has refused to play ball, breaking from its traditional preference for high prices, in order to keep pumping.

2015: The Year of the Marginal Cost

It is said that little drops of water make a mighty ocean. Little drops of oil on the other hand…..perhaps can cause the perfect storm. To put this in context let us revisit this quote from 2012 for context:

“Bernstein’s energy analysts have looked at the upstream costs for the 50 biggest listed oil producers and found that — surprise, surprise — “the era of cheap oil is over”:

Tracking data from the 50 largest listed oil and gas producing companies globally (ex FSU) indicates that cash, production and unit costs in 2011 grew at a rate significantly faster than the 10 year average. Last year production costs increased 26% y-o-y, while the unit cost of production increased by 21% y-o-y to US$35.88/bbl. This is significantly higher than the longer term cost growth rates, highlighting continued cost pressures faced by the E&P industry as the incremental barrel continues to become more expensive to produce. The marginal cost of the 50 largest oil and gas producers globally increased to US$92/bbl in 2011, an increase of 11% y-o-y and in-line with historical average CAGR growth. Assuming another double digit increase this year, marginal costs for the 50 largest oil and gas producers could reach close to US$100/bbl. While we see near term downside to oil prices on weaker demand growth, the longer term outlook for higher oil prices continues to be supported by the rising costs of production.”

The current oil price has hit $48 per barrel, an over 5-year record low and it goes without saying that high-cost producers of oil are in for a torrid time at sea; a perfect storm is indeed brewing.