Sunday, January 18, 2015

Low oil prices to continue?

This argument (here) that $50US/barrel oil might be a ceiling price not a floor impresses me as sensible. The Saudi's are involved in a war with the US unconventional oil producers and the most sensible thing for them to do is to keep prices below a level that allows the unconventional oil producers to be profitable. That price seems to be about $50US/barrel. Moreover, the policy seems to be working.

According to the AFR page 9 this morning (unfortunately paywalled) drilling rigs are going out of business now in the US.  Over the last 3 months oil rig numbers in the US have fallen from 1591 to 1366 while gas rigs have fallen from 330 to 310.  One forecast is that 800 rigs will close by the end of 2015.  This does not necessarily indicate a proportionate drop in oil production given the "flight to quality" rigs that will occur.

It will be interesting to see this Wednesday what BHP-Billiton says of the effects of the recent oil price collapse has on its $20b US shale oil investments.  A fair bit of its production is low cost (around $40/barrel) but the outlook for returns will at least be disappointing.

1 comment:

  1. HC, people are rather drunk on these low prices.

    You don't have to be particularly old and grey to remember oil prices may be 10 years ago, when everyone in the media and assorted public intellectuals were predicting permanently high oil prices.