The current retail price for gas implies oil trading in the $15-$20 range.At the Christmas Eve party I attended last night there were a lot of oil and gas people. This was a big topic of conversation: How will this bust differ from the 1980s? One big difference this time is the majors did not go on a wild drunken hiring binge. Even with the collapse in prices there is a desperate shortage of talent because so many of the engineers and geologists are in their 50s and 60s. There are few young people in this field. (Hint hint for you college freshmen who are wondering what you should major in.) Hiring has been slow and steady for the past decade, and it seems that none of the majors priced their operational costs on $100 oil or even $50 oil.
So that's the buzz at at least one party. Is it true? I dunno.
One thing everyone agreed upon is the small players and wildcatters drilling out there in remote areas of Texas and Oklahoma are gonna get hammered. Plenty of small town roughnecks will be unemployed very soon. Big layoffs for oilfield service workers lie ahead. You good folks in Midland-Odessa? Brace yourselves. You folks up in Parachute, CO and in northern Alberta working the oil sands? Sorry, the good times are over. Oil trading at $20 means your operations will be shut down.
Gas was .99/gallon in 1999. Oil was trading under $10. Houston still did OK then. This time? Who knows. Petrothugs like Melonhead will quickly come to the realization that extracting oil is an increasingly complex business, one that is not efficient when it is turned over to untrained, uneducated petty hand-picked bureaucrats. It requires highly-trained engineers and scientists. Most of whom just so happen to live here. One thing is certain: Citizens of Iran, Venezuela and Russia will be very, very restive in 2009.
All of you people touting "peak oil" nonsense who failed to recognize the oil and gas bubble for what it is: Don't you study history?
5 comments:
It won't hurt Russia as quickly as the other two. For one thing their major export isn't oil it is natural gas to Europe and second they actually saved up 1.2 trillion in reserve for times just like these. If the price stays low long enough then yes Russia's resurgence will be hampered by this but not this in the next year.
Paul writes,
Yeah, Russia's in a fine place. Run off out of Moscow the head of BP with death threats, stole Shell's billion dollar project at Shaklin Island, 95% of investment capital in the Moscow market by foreigners because no Russian is stupid enough to trust Pootie and Company, LLC.
Nat Gas consumption down in Europe and under price pressure.
Oh, and hows that Madoff like Sovereign wealth fund's investment doing? Last I read it was down a quarter at at rates of consumption would be zero by the end of summer. I suppose this is where the IMF bailout comes in.
I think the Russian situation is very grim. Well, it was already pretty grim but it's going to get a lot worse. Russia has already spent about 1/4 of their reserve on various "stimulus" actions. Combine that with the fact that they need about $90 / barrel oil for their new budget to break even. Foreign investment is in a mass exodus. If you watch a lot of youtube videos you get the sense that Russians are very concerned about their country breaking apart. We shall see.
Russia's just had their EIGHTH ruble devaluation in the space of only a few months.
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