Saudi Prince Alwaleed bin Talal said in an interview yesterday that “oil is never going back to $100.” Let me translate: “We are sick of Americans and Russians taking our market share, and we’re taking it back forever.” These were strong words from one known to publicly disagree with his government, and whose personal wealth has been estimated at over $20 billion.
Continued weak oil prices are seriously damaging US energy companies with companies like Breitburn Energy, Goodrich Petroleum, and Continental Resources among it’s biggest losers in recent months. I remain very bearish for several reasons…the Saudis’ apparent serious resolve to reset the markets, downward trend in heavy hydrocarbon demand, and the high break-even costs for unconventional resources. I believe we are in for a long haul here.
I’m sitting here watching Bloomberg report WTI at a hair over $46 a barrel, and reading Goldman’s gloomy prognostication that the six month price will be $39, rather than the previous $75, and the twelve month number will be $65 vs $80. OPEC is continuing to hold the line on their production putting gigantic pressure on US shale production which has a break-even, depending on region, of around $50 to $75 per barrel. Last week, Fortune’s Shawn Tully declared the US shale boom in serious jeopardy, correctly asserting that the high decline curve on unconventional resources demands ever increasing capital investment to grow production.
With US oil stocks remaining at 5 year highs, and reduced near-term domestic and international demand, I’ve become increasingly bearish on crude pricing for the short to medium term. The Saudis seem to have a tight grip on the OPEC members, and they are holding the line to keep prices just low enough to stifle new shale production.
The industry is responsive to big shifts in economics, this time, though, it appears that the large conventional producers who have lower marginal costs, like Saudi Arabia, are in the drivers seat. And that would be happy to drive the car over the cliff if it puts them back in charge of global prices.
More ugliness to come.