2 years is enough to wipe out all US shale producers.
What's your theory on where oil price is heading?
- Thread starter themickey
- Start date
2 years is enough to wipe out all US shale producers.
Yeah but they can be up and running again in 6 months. Sucks if you've got equity tie up in one of them, but it's not like the industry is going to die.
Saudis are trying to pull an Amazon. Operate at a loss as long as it takes until all your competitors go out of business...and then end up having the lion's share of the market.
If that's their strategy it's not really a sound one. In the U.S. at least, the fracking operations are often very low capital, quick operations. They'll put them all out of business, and the minute the price of oil goes back up the same number will reform and within a couple months be producing what they were before. There are scale efficiencies that create barriers to entry and increasing returns to adoption for someone like Amazon. Those don't really exist in the oil market. I'd guess that at least a couple folks at Aramco are familiar with Porter's 5 forces and basic strategy, if so then they wouldn't be silly enough to actually think that low oil prices would permanently put their competitors out of business.
My take on it is that it's bigger picture and more geopolitical/OPEC related. OPEC has become less and less effective as members don't feel the need to follow the cartel agreements or agree to production restrictions in the first place. KSA isn't trying to put anyone out of business, they're simply putting a world of hurt on all the other OPEC members as a reminder that this is something they can do at any time and it hurts everyone else more than it hurts them. It's just muscle flexing to make the cartel more effective going forward.
Agree with your big picture assessment, but I also think KSA smelled blood and is jumping on the golden opportunity to finally put the remaining struggling shale oil producers out of their misery. The supermajors may come in and pick up the pieces for pennies on the dollar, and then resume responsible drilling once oil prices recover. But the wildcatting days of the Permian oil patch are over as no banks will ever lend to any startup shale fracking operation, and any small to medium sized shale company will be forever completely shut out of the credit markets after we witness an unprecedented string of insolvencies and bankruptcies in the E&P sector in the coming months. Creditors and lenders have finally learned their lesson and will stay as far away as possible from these money bleeding operations.
KSA was also just sick and tired of doing all the heavy lifting of production cuts for OPEC+, while helplessly watching US oil production explode at their expense. Russia has also openly stated they want to put the final knockout blow on shale producers. OPEC+ won't be able to control oil prices until US returns to being a 2nd tier oil producer.
https://www.wsj.com/articles/russia-takes-aim-at-u-s-shale-oil-producers-11584052675
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Since its down from $150 + down again;
Arabia wants a downtrend again.Not a prediction...……………………………………………………………………………………………...
These Saudi unilateral oil interventions never work out over the long run.
And yes, you can shut down a shale operation and have it back up and running in a few months time.
What’s driving today’s price action is the realization that crude storage is about to run out - that’s how precipitously demand has dropped.
I’m trying to remember if I’ve ever seen such severe prompt months Contango in the forward curve before
And yes, you can shut down a shale operation and have it back up and running in a few months time.
What’s driving today’s price action is the realization that crude storage is about to run out - that’s how precipitously demand has dropped.
I’m trying to remember if I’ve ever seen such severe prompt months Contango in the forward curve before
Traders that have resisted the urge to fade the Contango move - That is, even though it’s a monster move into the ether they have closed their eyes, joined the trend, and sold prompt month and bought dated back month(s) have made serious bank.
With dire storage issues coming into focus your long leg had better be dated.
With dire storage issues coming into focus your long leg had better be dated.
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It's becoming very attractive.
Well I've wiped out all oil stocks from my watchlist yesterday as for future prospective investments.
I believe oil is a doomed investment when compared to other better sectors such, fin tech, IT, healthcare, new upcoming technology such as 3D printing.
IMO, oil these days is too readily available, too easy to drill, too many competitors, plus the fact natural gas, hydrogen and Electric storage / solar are becoming a better choice in many instances.
They only need to discover a micro nuclear energy source and that will be the final nail.
Thermal coal is another dodo.
I believe oil is a doomed investment when compared to other better sectors such, fin tech, IT, healthcare, new upcoming technology such as 3D printing.
IMO, oil these days is too readily available, too easy to drill, too many competitors, plus the fact natural gas, hydrogen and Electric storage / solar are becoming a better choice in many instances.
They only need to discover a micro nuclear energy source and that will be the final nail.
Thermal coal is another dodo.