October 6th, 2015
Over the weekend, Russian Energy Minister Alexander Novak announced that Moscow is ready to meet with both OPEC and other oil producers to address the low price of oil.
For the first time in nearly 11 months, geopolitics is likely to give support to higher crude, and oil prices saw a new push.
Ever since OPEC decided last Thanksgiving to defend market share rather than price, crude has been in a swoon. That has had a major negative impact on countries relying upon the sale of oil to balance their central budgets. All producing countries have been affected as oil declined from the triple digits to around $40 a barrel.
And even U.S. producers have taken it on the chin. The American scene may be accentuated by huge new reserves of shale and tight oil, but these are more expensive to extract, requiring an average price of well above $70-75 a barrel.
But since last year’s OPEC decision, little has been done on a geopolitical scale to correct oil prices. So why has Russia just cried uncle?
Here’s my take on why Russia’s planning to meet with OPEC… and what the outcome will be…
October 2nd, 2015
We now have another indication that the oil pricing environment is causing a constriction in forward project commitments: Two more oil majors recently announced that they will cut capital spending.
First, French international giant Total (NYSE:TOT) said that it was dramatically lowering its capital spending, delaying the start of projects, and increasing cost-cutting measures in the face of low prices.
The latest cut amounts to $3 billion, but combined with others previously announced, the company plans to bring the amount it spends on oil and natural gas projects down from a high of $28 billion in 2013 to $20-21 billon in 2016 with a “sustainable level” of annual capex at $17-19 billion from 2017 onward.
The news had hardly sunk in when an even bigger news flash hit. After being the focus of intense political battles over several years, Royal Dutch Shell (NYSE:RDS-A) indicated it would stop its $7 billon offshore drilling program in the Arctic.
These two announcements are the tip of a much bigger iceberg. The curtailment of future project commitments is just one of the results of low prices.
Here’s the other major effect, how it will shake up the oil industry, and how one group of companies will come out on top…