Saudi Cut In Oil Price for US May Lead To Price War
Yves here. We pointed out last month that the US was on the list of Saudi targets when it made clear it was not supporting oil prices at a level higher than $80 a barrel. Some readers rejected the idea that Riyadh would launch a price war to undermine the US, when in fact the desert kingdom has been mightily unhappy with US policies in the Middle East for some time (in case you managed to miss it, ISIS started out as Prince Bandar’s private army and odds are high that it continues to get Saudi support).
[...]
But another person familiar with the Saudi decision, whose name was not disclosed, told the newspaper that the aim was merely to lure US refiners to buy cheaper oil from Saudi Arabia and thus increase their profits. http://investorshub.advfn.com/boards/read_msg.aspx?message_id=108956733
Oilfield Writedowns Loom as Market Collapse Guts Drilling Values
By Joe Carroll January 05, 2015
Tumbling crude prices will trigger a flood of oilfield writedowns starting this month after industry returns slumped to a 16-year low, calling into question half a decade of exploration.
With crude prices down more than 50 percent from their 2014 peak, fields as far-flung as Kazakhstan and Australia are no longer worth pumping, said a team of Citigroup Inc. (C:US) analysts led by Alastair Syme. Companies on the hook for risky, high-cost projects that don’t make sense in a $50-a-barrel market include international titans such as Royal Dutch Shell Plc (RDSA) and small wildcatters like Sanchez Energy Corp.
The impending writedowns represent the latest blow to an industry rocked by a combination of faltering demand growth and booming supplies from North American shale fields. The downturn threatens to wipe out more than $1.6 trillion in earnings for producing companies and nations this year. Oil explorers already are canceling drilling plans and laying off crews to conserve cash needed to cover dividend checks to investors and pay back debts.
[...]
The oil-market rout is exposing projects dating as far back as 2009 that were either poorly executed or bad ideas to begin with
[...]
The writedowns that occur will be in the form of asset impairment charges related to the declining worth of specific oilfields, rather than wholesale reductions in proved reserves, Sadeghian said. Investors are less inclined to punish oil companies for impairment charges than they would for a drop in reserve volumes, said Gabriele Sorbara, an analyst at Topeka Capital Markets Inc. in New York.
Citi expects Brent crude, an international crude benchmark, to average $62 this year, cutting earnings per share for major oil companies by an average of 29 percent through 2017 and increasing pressure to postpone some drilling.
.. job losses .. the negative side of the oil price drop ..
By Nick Cunningham Posted on Wed, 31 December 2014 19:01 | 4
Crude oil is set to close out a shocking year with a fresh five-year price low in the final days of 2014, falling more than 50 percent from their June highs.
The decline continues to bedevil the markets. Sensing a rally was in order, speculators had dumped money into energy stocks throughout the month of December, hoping to buy up positions at basement prices. But Bloomberg reports .. http://www.bloomberg.com/news/2014-12-31/hedge-funds-surrender-to-oil-rout-as-bullish-bets-drop.html .. that long positions in West Texas Intermediate declined by the most since August for the week ending on December 23, an indication that the markets have lost confidence in a swift rebound for oil prices.
Less drilling will not only lead to a loss of jobs for oil workers, but the services that pop up around drilling sites – restaurants, bars, construction, and more – are feeling the slowdown as well.
In one example recently reported by Bloomberg .. http://www.bloomberg.com/news/2014-12-30/bakken-club-gets-evicted-as-oil-plunge-tests-shale-boom.html , a private club in Williston, North Dakota has been shuttered because it failed to pay rent. “The Bakken Club,” which offered exclusive services including fine dining, airport shuttling, and corporate events, was a place where “like-minded individuals can further their business relationships.” Memberships ranged .. http://thebakkenclub.com/membership/ .. from $5000 to $25,000. Unfortunately for The Bakken Club, such lavish living becomes harder to maintain when oil prices crash.
According to an assessment from the Federal Reserve Bank of Dallas, an estimated 250,000 jobs across eight U.S. states could be lost in 2015 if oil prices don’t rise. More than 50 percent of those job losses would occur in Texas, which leads the nation in oil production.
There are some early signs that a slowdown in drilling could spread to the manufacturing sector in Texas. Companies have sprung up during the shale boom to build metal, machinery, pipes, electrical equipment, chemicals, and other support services. But with the drilling climate taking a turn for the worse, manufactures are starting to feel the chill as well.
The Dallas Fed reported .. http://dallasfed.org/microsites/research/surveys/tmos/index.cfm .. a decline in new orders in a key manufacturing survey. One executive at a metal manufacturing company said in the survey, “the drop in crude oil prices is going to make things ugly… quickly.” Another company that manufactures machinery told the Dallas Fed, “Low oil prices will drive reductions in U.S. drilling rigs, which will in turn reduce the market for our products.”
The sentiment was similar for a chemical manufacturer, who said “lower oil prices will adversely impact margins. Energy volatility will cause our customers to keep inventories tight.”
States like Texas, North Dakota, Oklahoma, and Louisiana have seen their economies boom over the last few years as oil production surged. But the sector is now deflating, leaving gashes in employment rolls and state budgets.
With such extensive dependence on oil for prosperity in these states, the pain will mount if oil prices stay low.
U.S. Steel idles tubular plants as oil prices drop
Posted: Tuesday, January 6, 2015 10:30 pm
From Staff and Wire Reports
U.S. Steel Corp. said Tuesday it would idle tubular plants in Houston and Ohio and lay off 756 workers, becoming one of the first U.S. industrial casualties of the recent collapse in global oil prices.
The plants make steel pipe and tube for oil and gas exploration and drilling. With oil prices having fallen to five-year lows, energy companies have far less incentive to drill for new supply, reducing demand for the plants’ products.
The company said it would shut down a plant in Lorain, Ohio, in March, laying off 614 workers. U.S. Steel also will lay off 142 employees who work at a plant in Houston. It said the moves were temporary.
A U.S. Steel tubular plant that employs 1,100 people north of Longview in Lone Star was not affected.
“The company has suddenly lost a great deal of business because of the recent downturn in the oil industry,” Tom McDermott, president of United Steelworkers local 1104 in Lorain wrote in a letter to workers. “What appeared just a few short weeks ago as being a productive year ... has most abruptly turned sour.”
The union declined further comment.
The so-called oil country tubular goods, or OCTG, industry has been built up extensively in the past few years to provide pipe and tube for the boom in drilling for shale gas and new oil in the Gulf of Mexico.
U.S. Steel, which is trying to reverse five straight years of losses has been among those betting most heavily on OCTG. The company’s tubular division posted an operating profit of $140 million during the first nine months of 2014, up from $23 million over the same period in 2010.
U.S., French and Chinese companies also have built up millions of tons of new capacity from Ohio to Texas, lured by a resurgent American auto industry and the country’s booming oil and gas sector.
Oversupply in the market has been exacerbated by huge flows of steel imports. Overall imports were up 35 percent to 38 million tons during the first 10 months of 2014, according to Global Trade Information Services.
Last summer, U.S. Steel and others won import tariffs on imports of OCTG from South Korea and other exporting countries. But it won’t be enough to prop up the industry in the face of falling oil prices.
As it pursued trade import tariffs, U.S. Steel last year curtailed operations at plants in Bellville, Texas, and McKeesport, Pennsylvania, citing competition from foreign imports.
They have yet to be restarted, a company spokeswoman said Tuesday.
U.S. Steel had about 26,000 employees in North America and 12,500 in Europe at the end of 2013.
U.S. Steel shares fell just more than 3 percent to close at $24.58 on the New York Stock Exchange.
News 
Market Data 
Discover 
AI
