Saudi Arabia to lower oil prices, the houston boom is over

Yes, because shale.

 

This article indicates BP will have layoffs...but will also create a new Houston business.

http://www.bizjournals.com/houston/...-downsize-as-it-creates-new-u-s.html?page=all

Houston-based BP Upstream Chief Executive Lamar McKay said Wednesday that the company's upcoming continental U.S. business "probably does" mean more job cuts and restructuring.

Still recovering from the 2010 Deepwater Horizon disaster, London-based BP PLC (NYSE: BP) announced March 4 that it will create a new Houston-based company to manage the energy giant's onshore assets in the lower 48 states.

 

I believe Saudi production costs are under $10 a barrel.
(http://www.reuters.com/article/2009/07/28/oil-cost-factbox-idUSLS12407420090728)

They do have shipping costs but they can essentially sell at any price they want. I can see several political reason for them to go low right now:

1. undercutting the Russian economy, possibly at the behest of the USA
2. undercutting ISIS production in Iraq ... that would keep ISIS dependent on outside Wahhabi money and under their influence, keeping them from opposing the King
3. undercutting the developing alternative energies, shutting off the incentive to develop and profitability of existing companies may insure their profits for longer run
4, in the same vein they discourage expansion of the much more expensive oil production like oil shales and fracking
5. stimulating the world economy keeps oil in demand, like a loss leader now to maintain economic health over the longer term, so a world-wide recession doesn't kill off demand. They also have hundreds of billions in past profits invested in diversified commerce so it might be as important to ensure those businesses as it is to maintain oil income.

I'm no big time O&G economist like Texx but it seems like this temporary fire sale on oil is justifiable at this point. And if the desired effects are achieved, easily reversed because their competition will be bankrupt.

*edit:
Forgot to put Iran in there, the Shia/Sunni world wide conflagration
How falling oil prices affect Russia, Iran, and the US

http://www.vox.com/2014/11/28/7302827/oil-prices-opec

 

I'm not full-time into the machinations of O&G prices either. My involvement is in the logistics chain of exporting O&G equipment.

IMO, #3 and #4 are the primary motives for the Saudis. I don't think they mind the other reasons, but the driving force is clearly long term, economic self-interest.

I just love what this does to oil producing nations with governments that hate the United States. Hopefully some of their economies will collapse and regimes will crumble. It's worth the pain to my industry.

 

As oil prices plunge, wide-ranging effects for consumers and the global economy
http://www.washingtonpost.com/busin...-11e4-9a27-6fdbc612bff8_story.html?tid=pm_pop

A pretty good, all-encompassing article

 

The L48 "company" will still be tied to BP. Plus, it's nothing new: they just broke off their US Onshore region because their costs were far higher than their competitors.

As to whether they're planning to keep the L48 company long term or just finish the separation and then sell it... who knows.

 

I'm no expert, but I don't think this will have as big of an effect as advertised. I can see growth and expansion slowing, and maybe a considerable amount of well heads with high operating costs getting relocated or frozen; but I think demand will increase and keep the bulk of America's "New-Oil" industry afloat.

I'd bet that Keystone however will die because of this, or at a minimum lose major traction and be back up for debate in the 2020 election cycle. Warren Buffet is looking like a freaking genius having purchased BNSF. Crude-by-Rail is and will continue to boom. And the company I work for is benefiting ENORMOUSELY because of this. I don't think y'all will be seeing much of me at all in 2015.

 

It's pretty much a Daryl Morey type of move. Like the Daryl Moreys poison pill contracts. Shrewd, but likely effective.

 

I think the bigger effect would be on smaller companies if this continues for an extended period. However, those would just get bought up by larger companies who would be able to sustain those leases until the prices go back up.

 

Exactly.

 

It's interesting how Saudi production hasn't moved and they seem to get the de facto nod as the culprit. The sudden decline without notice also looks like a financial bet being sold out.

 

please elaborate

 

I hear Shell is cutting 40% if it's backoffice jobs.

 

it's safe to assume it's the saudis considering they are the world's largest supplier of oil by a wide margin. they have the power to influence OPEC to cut supply if they desired. also i don't think it's outlandish to consider the US being ok with this in the short term to hurt russia from this angle along with their sanctions.

 

That sounds like a lot of people.

 

cold war never really ended

 

I filled up today for $2.44 a gallon -- sorry Houston -- thanks Obama.

 

Because you can't not because you don't want to -- I would enjoy reading your information on the subject if you can actually provide it.

 

High oil prices are a drag to the US economy in every other sector since those increased fuel costs are passed onto the consumer.

Sorry for you folks working in the O&G industry but tumbling oil prices are a godsend to just about everyone else in the US.

 

You do realize that 99% of the time, all that happens is that the economic pain is passed on to the lower 99% of population in the form of austerity measures? You might get one or two violent protests, but more likely the end result is just more suffering for hundreds of millions of already impoverished people while the elite whine about reduced profits from their allocated oil blocks.