General Electric Co. (NYSE:GE) announced a deal to combine its oil-and-gas business with Baker-Hughes, creating one of the world's largest providers of equipment, technology, and services to the oil and gas industry. Worldwide drilling activity had peaked in November 2014, the same month that Saudi Arabia had started the war for market share, which eventually caused oil prices to collapse.
As oil prices plummeted, so did the rig count. Active rigs worldwide fell from 3,670 to 1,405 in May 2016, a 62% drop. In the U.S., rigs fell from 1,930 t0 408, a 79% drop.
But as oil prices rebounded to $50/b in late May, the rout ended. Since May, active rigs rose by 25% in the U.S. and by 13% worldwide. Continue reading "GE's Timely Baker-Hughes Deal: Rigs And Oil Production Set To Rise"
The Energy Report: Bob, in January you published an article saying that the drop in oil prices could be the "straw that pops the $7-trillion derivative bubble." Can you explain the influence of oil prices on derivatives?
Bob Moriarty: It's not the oil prices that are significant; it's the change in oil prices. If you own an oil field and it costs you $75 to produce a barrel, at $110 a barrel ($110/bbl), you're OK. If oil drops to $45/bbl, you're in serious trouble.
In the shale oil sector, producers were taking out hundreds of billions of dollars in loans to finance shale oil that was costing them about $110/bbl to produce. It looked good on paper, but was a disaster waiting to happen. A lot of people in the shale oil business will soon be going out of business.
"Pan Orient Energy Corp. just closed on the Thailand sale, and will be drilling a game-changing well in the next couple of weeks."
This could start World War III. The United States is the biggest oil producer in the world today, and Russia is number two. Russia's economy is based on oil priced at $110/bbl. They are very angry at the U.S. and Saudi Arabia for the games that have been played in oil. Oil at $45/bbl is not sustainable. It could bring down the world's financial system all by itself.
The real cost of energy today is $60 to $70/bbl. In the last piece I did with The Energy Report, I said $75 to $100/bbl oil was the new normal. That's still true. Oil is way below the cost of production, and that's going to hurt a lot of people.
TER: There is speculation the Saudis are doing this to wipe out some of the Russian and deepwater production. Could that be true? Continue reading "Low Oil Prices Are an Act of Economic Warfare"