This page has been archived and commenting is disabled.
Oil Prices Won't Recover Anytime Soon Says Exxon CEO
Submitted by Nick Cunningham via OilPrice.com,
There is mounting evidence that oil prices are poised to rebound from a historic bust.
Rig counts hit new lows each week. For the week ending on April 17, Baker Hughes says the U.S. lost an additional 34 oil and gas rigs, bringing the total down to 954. Domestic crude oil production appears to have plateaued and the EIA expects a contraction in May. Nearly every driller is dramatically scaling back spending, which should increasingly cut into new output. And oil consumption is finally picking up, as drivers far and wide take advantage of cheap fuel.
But what if the bust is not over yet? Despite the signs of a rebound, ExxonMobil’s CEO Rex Tillerson has a much more bearish take on oil prices. Speaking at the IHS CeraWeek conference in Houston, Tillerson predicted that oil prices would remain subdued for the next several years.
While the longer-term is harder to predict, there is quite a bit of evidence to suggest that oil prices may not rise much higher than where they are right now in the short-term. For one, crude oil inventories continue to build. Although the stock build has slowed in recent weeks, it is still dramatically higher than the five-year average. Until production slows to the point that consumers are drawing down inventories faster than they can be replaced, oil prices have little room to rise.

Another significant factor that could limit any further increases in oil prices is the enormous backlog of wells awaiting completion. Since most of the value of oil and gas coming out of shale occurs in the first few months of production, drillers are avoiding completing hundreds of wells because selling into the current low-price environment would earn them a lot less cash than if they wait until prices rise again. As a result, there is a vast collection of shale wells that will be completed once oil prices increase (an estimated 900 in North Dakota alone), which could bring a flood of new production online. The effect on prices is debatable, but the CEO of ConocoPhillips thinks it could send oil prices down once again.
“If you get a price signal, you'll see more supply come on,” ConocoPhillips Ryan Lance said at CeraWeek. “That certainly has the opportunity to exacerbate the problem depending on where demand is.” He went on to add, “If $80-$90 [per barrel] comes back, there's a good chance that $50-$60 comes back as well because of all the new oil that will come online from completed wells. Boom, bust, boom, bust.”
Moreover, the industry is seeing substantial declines in costs for drilling. When oil prices are high, costs to drill rise as demand for equipment, rigs, and other oil field services increases. But, just as high oil prices can be inflationary on costs, an oil bust has a corresponding deflationary effect on costs. As companies like Halliburton, Schlumberger, Baker Hughes, Transocean, and others are finding out, service companies are being forced to slash their prices for drilling services amid collapsing demand for drilling. Upstream producers stand to benefit in the meantime. In other words, low oil prices allow for costs to decline, which allows more companies to stay business. As a result, oil prices tend to stay lower, longer.
Finally, there is the issue of OPEC. Saudi Arabia is now producing oil at the highest level in decades, in an effort to keep the heat on higher cost producers. Elevated production from OPEC probably won’t change anytime soon. Worse yet for oil prices, is the potential for Iranian crude to come to global markets. If a nuclear deal can be finalized, Iran could step up production in 2016, adding more supplies to an already well-supplied marketplace.
Obviously, there is a ton of uncertainty. Oil markets are already starting to adjust with the pending production cutbacks from U.S. shale. That could lead to higher prices.
But facing headwinds, it may not be enough to raise prices any further, increasing the possibility of an extended down period for oil. For smaller companies, that could be devastating. But the majors view this is a normal a business cycle. When asked what the energy industry would look like several years from now after a long stretch of lower prices, ExxonMobil’s Tillerson said defiantly, “we will still be here.”
- 19861 reads
- Printer-friendly version
- Send to friend
- advertisements -


Need to squeeze out more small players to pick up the scraps.
That won't work. As soon as the price goes up enough, they'll start floating HY bonds and selling them to fools and optimists and back to punching holes. That's how we got here and nobody has gotten any smarter....
whos da man? Who's demand is supposed to bring prices up? China? Europe? it's da flation thats da problem.
If you were the CEO of Exxon, and wanted to buy up competitors on the cheap, you would talk down the price of oil, and claim that the market price will be low for years. That way, your DCF model can be used to lower valuations, hence prices.
1.) XOM isn't in the business of attempting to "talk down" international commodity markets so that it can pick up a few thousand acres in Louisiana. If that was their MO they would have bought Whiting when Whiting was begging for a buyer.
2.) XOM has bigger fish to fry. They have to replace significant reserves annually and need accretive acquisitions not at a cheap price but at the right price. They're not gambling for a quick stock swing. They're worried about how they're going to get oil out of Kurdistan 10 years from now.
3.) Tillerson is correct. We've seen this movie before with unconventional gas. The bigger fools are the PE backed companies praying for quick return to $75+.
4.) Everybody knows that the season for M&A hasn't arrived yet. These companies are hedged and they're still getting by. In a quarter or two the real fire sales will begin as their hedging positions begin to expire.
Iran has the second largest reserves in the world, and nat gas is lower than a snake's belly in a wagon rut.
Lower prices ahead.
Saying they won't recover or will recover doesn't mean much without knowing the root cause of the collapse:
http://debtcrash.report/entry/oil-price-drop-root-cause-analysis
There is little doubt that OPEC and the Sauds are lapdogs of US foreign policy elite....also little doubt that Iran miraculously has news that they will increase production dramatically at teh same time that Sauds are openly trying to drive prices lower...and little doubt that Exxon is very tied in with US foreign polciy elite.
The little independents are the ones that let this cracking revolution out of the bag....the big boys sat on the technology for 50 years. Now they are just cleaning up the mess and will buy stuff up on the cheap. There is a reasson that real bottoms don't get formed until we see bankruptcies. Exxon and the Sauds and the puppet masters won't be happy until they secure assets on the cheap...and this $14 rally in crude is notthe kind of "on the cheap" I am talking about.
other signs to look for in a real oil bottom
market doesn't move in a straight line.
and little doubt that Exxon is very tied in with US foreign policy elite... Little doubt that Exxon dictates US foreign policy is more like it.
ISIS as an excuse to shut down Iraq(Syria) and allow Iran to gain market share w/o driving oil any lower. If oil price gets too low for too long, I'm sure there'll be a pre-planned false flag attack blamed on Iran. It'll have to be nuclear this time, to give an argument for a military draft. Iran's nearly 4 X's bigger than Iraq and over 2x's the population. Also, it'll probably happen after the next puppet is installed in the WH. See 9/11/01.
1. The Saudi’s are pumping from strategic oil wells
2. A bigger income equality and rise to middle class in the de elopping world creates much bigged demand, it’s where China’s growth numbers keep comming from even as the west is declining.
3. Fracking is not economical viable in a few more years when all the easy stuff is gone and the first environmental problems pop up.
4. Inflation in general.
Deflation is only a local problem in certain communities that where louzy a decade ago. There’s more places where inflation is a bitch.
oil will be at 70 plus at year end, 90 by the end of next year and it will keep rising.
All this Ceo is talking the markets down so Exxon can do a few takeovers.
And there’s a even way bigger story that’s been underreported all over, and that’s the Saudi’s buying up hughe oil field all over the world right now. They’re running low on oil and they’re pumping what they’ve got to lower prices to secure future income.
And why is nobody wonder why oil storage is rising in the US while it still needs to import oil?
I bet you $100 it will be closer to $45 than $70 at year's end.
Chances are we will both be alive to see the day...
convenient how all these pontiffs make their announcements on the exact day the market does the opposite...
we will see a weaker AUD says AU Central Bank... now up 3 points...
oil bear market... oil up $3 - straight up the page...
stocks are a disaster go short - straight up the page testing record highs again.
etc. etc. etc.
Wouldn't want to spark a recession before Nov 2016, would we?
Why is it that when it comes to oil and gas, everyone seems to think that fundementals matter? It's surely one of the most manipulated markets EVER.
Meh. What does Tillerson know??
Just buy BUY BUY and drive oil prices back up!!
That should really kill the economy as most peeps extra money from oil falling to here went to free Obama high deductible care....
I mean if oil prices should go up in expectation to that 5% GDP that's been around the corner for years now....
it would satisfy my short plays......
Yep. The oil co's had to divert some revenue into their 'hired gun's' treasury when QE went away. You don't want to kill the slaves, just keep them bled dry. If O'Care is ever abolished(stop laughing), then oil prices will mysteriously skyrocket and calls of peak oil will gush from every NYC media outlet once again.
Define low.................
So far everyone predicting $35 or $20 is wrong. I will tell you this though, Tillerson's company has four active permits issued March 17 on one of my sections in the Wolfcamp. They plan to drill 4 x 4200 foot laterals with room for another four wells later on. They permitted wells 1h, 3h, 5h and 7h. So why did they bother if they think prices will be low.
Yea we wouldn't want fundamentals to interfere with today's market place..
Must be Psyops.
(Green arrow)
I assure you that the CEO Mr. Tillerson does not know every minute detail of every part of Exxon's operation. Their analysts advising him may not even be on the same planet as the project managers who signed off on the drilling you're describing.
They can afford to lose a few bucks if they're wrong. They are still keeping the company running and keep the guys working. Doesn't always have to make sense.
They can borrow that money for less than savers should be paid. Why not drill?
http://quicktake.morningstar.com/StockNet/bonds.aspx?Symbol=XOM
the last widely quoted equilibrium price based on fundamentals was $70(last year's), so anything below $70 is low
which means there's room to go higher from here and still be considered longterm low by an oil major
Priced in gold, jewbux or both?
Supply and Demand mean nothing....price will be $150 in 6 months. Just like the market will double again in year. We left sanity a while ago.
The US imports over 7mmbbl/day, seems to be a shortage of supply produced here in the US but not a shortage of demand.
we exported almost 2 million of refined product and the remaining imports come from those distance lands of Mexico or Canada. The price has increased almost 6 fold in 20 years? When "inflation" increased maybe 40%... Ever notice how investment banks mention "commodity profits" as a major source of income?
When asked what the energy industry would look like several years from now after a long stretch of lower prices, ExxonMobil’s Tillerson said defiantly, “we will still be here.”
meaning that xom will still exist, not that their market cap will still be here (~$400B).
WTF? "Low oil prices allow for costs to decline, which allows more companies to stay business. As a result, oil prices tend to stay lower, longer."
Assuming companies don't have investors to answer to, and aren't levered to the hilt. Even upstream companies are operating at ridiculous margins vs their P/E ratios.
100 million working age adults out of work. That might have an impact. Ya think?
What a pity. I trust Exxon will do the frackers a favour by buying them out at a fraction of their former value?
so much for the greens
Energy is cheap until it is not
Oil Price Crash Brings Big Profits For Swiss Banks, Investment Corps
We need a healthy round of M&A, he added.
"Take out the speculators."
Sure like the talk but until the Fed can get off the zero bound hard to see it.
Who wouldn't like to see it? Everyone on the Planet near as I can tell.
Obviously oil, like everything else, is based on supply and demand.
The difference in supply between last year and this year doesn't explain the drop by itself.
A less-than-50% increase in supply doesn't explain a more-than-50% decline in price...all thing being equal.
The question is this: What things are not equal??? Why are small moves in supply making big moves in price?
Low demand is a major factor. But the deviation of demand from normal, plus the addition of supply don't really expain the degree of price discount.
Something else is going on. What?
Who will survive?
Rosneft is backed by the Russian Army and nuclear weapons. The rest of the Russian economy will be sucked dry as a raisin, and Saudi will be invaded, before the Russians will allow Rosneft to fail, regardless of their production cost. Of course, the flip side of that coin, given that over 50% of Russia's revenues are from energy, is that all the costs of supporting that Army and nukes, as well as the Russian Social Spending, are in fact CAPEX for Rosneft and Gazprom, whether they book it that way or not.
In the US, clearly, the frackers...or at least some subset of them...have lower production costs than previously believed. Some are out. Some are going out. Some...might survive indefinitely.
Saudi Arabia has insanely low production costs...at least on paper. But what is funding SA military action in Yemen? Oil. What maintains that Army? Oil. What pays all the foreign workers in SA, so that Saudi's can stay home and plot the conversion of the world by sword? Oil. What pays individual Saudi's such generous payments, such that they get more money per year simply for being born, than most people of the world - even the first world - get for advanced work? Oil. So, clearly, SA social benefit structure is also CAPEX for Aramco...whether they book it that way or not.
What else is not equal??? Why do small moves in supply and demand equal big moves in price? This stinks of paper trading.
Russia will be OK. Saudis money will run out a lot sooner:-) Russia has been awakening! Both spiritually and economically. More and more private companies springing up everywhere. There is enough investments, because Western banks were replaced by Chinese banks and Chinese investments, plus also India, South Korea, Vietnam, etc. Russia's pivot to Asia has been worth it. For example, Russia is now building its own "Silicon Valley" - with the help of China. They have a huge amount of similar joint projects with China, both business and military projects, something along the lines: China will teach Russia to trade and Russia will teach China to fight:-) Plus Russia is now investing and building projects in the entire South America, in Africa, in Asia......I quote from Windows to Russia: "Contrary to what the western press is saying, Russians are doing great and there is no issue with the country and sanctions. In fact it is the opposite and I see growth in all aspects around me as I watch. The prices are dropping and new businesses are opening up everywhere…" Add to that: very little debt, free education, free healthcare and perhaps now you understand why in the recent polls 76 percent of Russians said they are happy and only 17 percent said they are unhappy. They also said they have never been happier in their history. And if you look at that history, you will understand why. And despite all those troubles, Russia will still manage to hold the FIFA World Cup. Sepp Blatter said that he has never seen so efficient preparations for a World Cup and praised Putin very much: “Your organising committee and you personally deserve five stars,” he told the Russian president. Also the new Armata tank is ready and will be shown during the Victory Day parade. So everything is going well in Russia.
Price sure is "recovering" around here. Up about 50 cents in the last two weeks.
So they can give us 'summer blends', to 'protect us'. If it sounds overly complicated, then move to the head of the class. The EPA exists to boost their profit margins.
https://colinscarspage.wordpress.com/2014/01/04/summer-blend-vs-winter-b...
And also, the farmers', who recently lost a round.
http://www.tradeonlytoday.com/2015/04/epa-agrees-ethanol-mandate-deadines/