Shale Oil & Gas

Overview

A Chemical Watch article titled “Plastics: Industry’s fortunes are uncertain” summed up the state of the oil market in its explanation of the future of the plastics industry.

“The fall in crude oil prices and its impact on shale oil and gas production, as well as increased consumer spending in the United States, a weak euro, and slower GDP growth in China, are factors that will continue to influence supply-demand fundamentals for plastics worldwide in 2015. The only certainty is that short-term visibility will be limited.”

The operative word, however, is in the headline—uncertain. Where, which direction, and when are the three most difficult questions to answer when regarding the oil industry. It seems to depend on whom you ask and how you ask the question(s).

Some of the big drillers are screaming for the president to lift the oil export ban so they can participate in higher profits from foreign markets. Bloomberg predicts that Shale is On Sale. The Fiscal Times believes gas prices are dropping again but they also think that oil prices will soon rebound. To further complicate matters, Citi says that oil could hit bottom at $20.

Let’s look at the details and see if we can make sense of what the alleged pundits and experts are saying. The state of the oil market is getting more slippery by the day.


Oil CEOs Press for Lifting of Export Ban

Dawn Kopecki and Bradley Owen in a Bloomberg article wrote that around a dozen U.S. drilling executives that included ConocoPhillips CEO Ryan Lance stormed Washington for the sole purpose of convincing the Obama administration to lift the oil export ban imposed after the 1973 Arab oil embargo. Apparently, oil in the U.S. is selling for about $10 less than the global average.

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Steelworkers Union—Tentative Deal Reached to End Strike
In a recent Reuters article, Erwin Seba reports that the United Steelworkers union and oil companies have drafted a tentative deal to end the largest U.S, refinery strike in 35 years.

The agreement, which affects about 30,000 workers would last four years, but still needs to be ratified, and may not end strikes right away as all pending issues are not resolved. Nevertheless, both sides claim they have a deal.

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Get Ready—Shale is Going On Sale
Yup—That’s the word on the street. According to a Bloomberg collaborative effort by Bradley Olson, Matthew Monks and Brooke Sutherland, Whiting Petroleum Corp., the largest producer in North Dakota’s Bakken shale basin, is putting itself up for sale to be the first tremor in a potential wave of consolidation as $50-a-barrel prices undercut companies with heavy debt and high costs . . . So there you have it. An oil industry biggie is leading the way.

“In this market, there are whales and there are fishes, and the whales are well armed,” said William Arnold, a former executive at Royal Dutch Shell Plc., who also worked as an energy-industry banker and now teaches at Rice University in Houston. “There are some very vulnerable little fishes out there trying to survive any way they can.”

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Gas Prices Are Ready to Drop Again
Anthony Mirhaydari tells us why in a Fiscal Times report that uses the old adage: “If something’s too good to be true, it probably is,” to illustrate his point. He goes on to say that’s probably how many felt when gasoline prices collapsed nearly 61 percent from their high last summer to the low in January. The Seattle area saw retail prices below $2 a gallon for the first time since the recession.

Just as quickly as they dropped, though, gas prices reversed course and zoomed higher, climbing 61 percent to a recent high set earlier this month.

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Oil Prices Will Rebound Before We Know It
Michael Brush tells us why in the Fiscal Times, the same publication that said “Gas Prices Are Set to Drop Again.” Hmmm . . . interesting times at the Fiscal Times.

According to the article, oil industry analysts have been engaging in a burning debate: Have prices hit bottom or do they have further to fall? Energy company CEOs have been voicing their views on the question as they report their quarterly earnings results. The International Energy Agency weighed in as well in a somewhat bearish five-year forecast released Tuesday, saying that oil prices will eventually rebound from current levels but still stay below the $100 a barrel mark. The group said global stockpiles would rise, putting prices under more pressure before spending cuts by oil producers kick in to ease the supply glut.

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Citi Says: Oil Could Bottom Out Around $20
And in yet another Fiscal Times article, Akin Oyedele, Business Insider, reported that Ed Morse, global head of commodity research at Citi, wrote that with evidence of oversupply in the oil market, the bottom is not yet in for oil prices.

“It’s impossible to call a bottom point,” Morse wrote, “which could, as a result of oversupply and the economics of storage, fall well below $40 a barrel for WTI, perhaps as low as the $20 range for a while.”

Citi is forecasting that Brent crude will average $54 a barrel in 2015, down from their previous call of $63 per barrel.

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