The Winners And Losers Of The Perfect Storm Hitting Oil Prices

By: David Sterman of Street Authority

When it comes to commodities, you'll usually find a set of countervailing forces that keep prices at an equilibrium. Yet when it comes to oil, all of the factors behind price swings are heading in the same direction.  As oil prices head lower yet, investors will feel both pain and gain -- depending on the make-up of their portfolios.

A Perfect Storm

For much of the past year, a barrel of West Texas Intermediate Crude fetched around $100 a barrel on the spot market. Yet since late July, a series of factors have conspired to push prices lower:

-- A rally in the dollar, which tends to push all commodity prices lower.

-- A further slowing in the European, Japanese and Chinese economies, which crimps demand.

-- A surge in output in Libya to 800,000 barrels a day, up from 240,000 barrels a day in June amid civil war skirmishes near key oil installations.

-- An oil production surge in Russia, which is back at peak post-Soviet era levels.

-- A rapidly rising output in Kurdistan as new key oil installations come on line.

-- OPEC's recent inability to curtail production as much as the market had hoped, leading to talk that this cartel may be weakening as market share becomes more important than pricing discipline.

Of course, the elephant in the room is the United States, which is single-handedly disrupting the global supply and demand trends on a massive scale. U.S. oil production has already surged from five million barrels a day in 2008 to 8.5 million barrels a day in August 2014, according to the Energy Information Administration. The more we produce, the less oil we import. Analysts at Citigroup note that oil imports are now nine million barrels per day lower than they were in 2007. It’s important to note that some of the reduction is due to a drop in consumption as we now drive more fuel-efficient cars. Continue reading "The Winners And Losers Of The Perfect Storm Hitting Oil Prices"

Worldwide Oil & Gas Capex Growth Good News for 'Big Four' Services Companies

The Energy Report: James, you have said the energy industry is in the early stages of a strong, sustained upside trend. What's driving that?

James West: Sustained high oil prices are driving a trend toward higher capital spending. Oil prices have been at elevated levelsabove $100 per barrel ($100/bbl) for Brent and $85 and above for WTI (West Texas Intermediate)for close to 40 months. Those are exceptionally good levels for most companies; they can make good profits on projects. Capital investments seem to be accelerating somewhat, particularly in the international markets.

North America is going through a little bit of an efficiency phase and a slowdown from rampant growth. That started after the financial crisis. Now the international markets, which are slower to recover after a financial crisis or downturn, as we saw in 2009, are starting to accelerate.

We recently released an update to our spending outlook, where we survey well over 300 companies in the oil and gas space. These companies represent about 90% or so of capital expenditures (capex) on exploration and production (EP), and they are showing about 13% gain year-over-year (YOY) in the international markets for capital budgets. There have been some regional shifts, but that's a pretty healthy number. Also, globally we're showing about a 10% gain in spending. This is the fourth year in a row of double-digit gains driven by high, sustained oil prices, behind which are many factors, one being limited OPEC spare capacity.

TER: Is the trend equally strong for gas? Continue reading "Worldwide Oil & Gas Capex Growth Good News for 'Big Four' Services Companies"