by BobInget » Mon 15 Dec 2014, 16:17:12
Saudi Arabia and Russia, currently in a gigantic oil price war that has removed 1.5 trillion dollars from the oil industry. This is not 'on the hook' , potential losses.
Watch, how this reverbs though the economy.
So far it looks like Saudi Arabia (and the US) are winning.. Short term.
here's an excerpt from one respected oil and gas guru, Robry
You may find it interesting.
......OIL (OPEC): OPEC continues to rhetorically push prices lower, and I continue (despite the rhetoric) see it as aimed at
......Russia and possibly Mexico more than US Shale (The rhetoric meaning to scare Russia mostly and the US shale rhetoric
......intended to avoid cornering Russia where it could not find a face-saving way to give in to OPEC?). US Shale plays nicely
......into East-Uropean disagreement between Russia and the US & Europe.
......I am quite confident (in my own thinking) that a deal was offered by OPEC at the Vienna pre-meating, and is likely on the table
......for Russia still (or why have the meeting and the discussioins leading up to it). Should Russia cave (at any time) oil funda-
......mentals change radically and suddenly.
......I don't think the US oil industry gets hurt seriously by this, given the size of their hedge vs the size of the pricing drop. The "Part 9-
......Position & Profits of Traders" post has more than 32 Billion in oil hedging gains implied since the end of July from the NYMEX
......CL contract only. Add in other markets and private contracts, iprofits are probably in the 60-75 BCF range.
......There are many possibilities for producers to play with their contracts. If an E&P was hedged for January at $96.50 (with oil
......at $56.50 on my screen), that E&P can make $40 per BBL by simply leaving its oil in the ground and buying back its Jan-15
......contracts. Could that same E&P earn more by selling those barrels for $56.50 on the physical markets at the same time the
......Jan-15 contracts payed out? Or would the E&P have a loss (on the $56.50 sale of the oil) to deduct from the $40 hedging gain
......(if it went ahead and produced & sold the physical oil that was hedged)?
......If that same E&P (that sold that $56.50 oil) had costs for its oil at say $66.50, the E&P that had the $40 hedging gain takes a loss
......of $10 on producing the oil ($56.50 proceeds of selling the oil less its $66.50 cost), reducing the gain on the combined transact-
......ion ($40 hedging gain less $10 producing loss, per BBL = $30 gain) and at the same time looses the ability to profit from the sale
......of those BBLS (that it just sold) when pricing recovers.
......Why not leave the oil in the ground for a $40 / Bbl profit, rather than give it away for a $30 / Bbl profit?
......I think sophisticated E&P's profit from this situation by leaving the oil in the ground, laying down drilling rigs, monitize futures, and
......build cash to drill later... and in so doing make of themselves coiled springs, waiting for pricing to reset itself to more rational levels
......($90's).
......I think that the OPEC-led pricing gambit in the long term plays right into US free-market disciplines. This will cull US E&P's (as
......every US economic downturn culls US industry), removing a few of the week hands while at the same time strengthening the strong.
......This pricing fiasco plays right into the hands of free-market thinking.
......For my part, I am fully invested on the oil side, and very overweight CWEI (1/3 of assets?). I think lower pricing from here speeds the
......process of supply-demand balance. And I am very comfortable and excited at this turn of events.
......OPEC does not need to bully oil down 45% long-term to correct a 2 percent supply/demand imbalance. Neither can OPEC afford
......too. This is a givaway (and a horrible blunder) on OPEC & Company's part.