Oil: Are we in a long period of low prices due to fracking?

[miket]

As a machinist I have dealt with the highs and lows of oil for most of my 26yrs in the trade. While always bumpy, the boom and bust has been pretty predictable ( the variable was really only timing it ) so you rode the highs while preparing for the lows, then hunkered down and waited it out.

But it looks like fracking has changed all that. OPEC has lost its thunder and we have taken the lead in oil production. In many ways this is great, especially for national security, so I am not complaining, but, in my opinion, the market we all know is gone. We are in a new oil world. To me it looks like we are entering a long term time of low prices, as soon as prices rise to any profitable level we raise production and knock it right back down. We can respond so quickly it is leveling the bumps.

In many way this is great, personally I am tired of the ride. But it also takes away the real risk/reward of the business. It seems like we are entering a period where it will be a true commodity, like toilet paper etc. ( maybe not quite that bad, but you get it ). Sure, we will get little bumps due to world issues ( like the tanker attacks ) and speculating ( playing the commodities market )

In my business most of the other shop owners and service companies are seeing very slow work, some saying work "dropped off the map", and many seem to be thinking the same thing I am.

What is yalls take on it? I would like to hear the opinions of the machine shop owners, service companies, drillers, landmen, roustabouts etc

[oktx]

I think so. We’ve fracked ourselves out of a job.

[txpitdog]

US oil production has tempered the amplitude of the highs and lows, but it hasn’t eliminated them. Highs will be measured in usage/production vs price. Lows will hopefully not be as severe.

Last year, at least from my company’s perspective, the oilfield was going gangbusters. Our barges were at near 100% utilization, and our oilfield equipment manufacturing division hired nearly 1000 people and operated as close to 24/7 as it ever has. All that has cooled, but notice that we didn’t see a reactionary spike in oil or gasoline prices after the tankers were hit in Hormuz this week. Used to, a refinery fire, news story, or attack would set the spec prices on oil to run (regardless of actual demand or production) until everything calmed down. We’re not really seeing that anymore. Additionally, the petrochemical industry is surging right now, which is adding stability to the market in place of slackening exploration.

I view US production as the cushion that makes the ride not so bumpy. Whatever the short term frustrations might be, looking at it from the 1970s and 1980s perspective, we have defanged the adversary that held us hostage. This is a massive economic victory that’s taken 40 years to achieve, but it’s also one that has had such an impact that I think it’s effects will still be felt 40-50 years into the future.


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[texan4ut]

All I know is that as a Real Estate appraiser I depend on my Truck for work gas prices at 2.15 in Round sure does help. I see it in other businesses too. When people spend less on gas they have more to spend on other things.

[eastxhunter]

I think so. We’ve fracked ourselves out of a job.

It’s obvious fracking has stoked our supply and probably has a hand in driving prices lower however there’s a few other reasons ,geopolitical etc. that aid as well that someone smarter than me will have to add color to.

And it depends on what jobs I suppose , increase in supply will create thousands of refining and pipeline jobs no?

[Big pig]

We discuss this all the time. We have gotten too good at our job.
Natural gas prices look to be very low for the near future.
Unfortunately, that’s my world presently.
I just heard just the Hainesville alone can supply all the LNG plants.

BP

[Artos]

Definitely need the NG realm to turn around...The Port of Brownsville recently announced three new plants & new dredging to be completed around 2023 which should help in some capacity at least for the deep south tx with increased production at the plants & field units.

I think there's a little more going on globally other than the efficiency of fracking controlling pricing. Just look at the uncertainty of what is currently happening in Iran...that huge tinderbox alone could easily alter the whole conversation. I do feel becoming totally energy independent is extremely important for the US & for us to be able to export LNG will be very painful for Russia and their current role that so many countries are dependent. Lotsa variables going on IMO to nail down anything concrete.

[txwhitetail]

Outside of huge political/world conflict issues such as Iran it sure looks like a pretty stable and relatively low oil price for a while.

In the service business in the Permian we have definitely seen service pricing decline quite a bit and salaries will have to be adjusted accordingly.

Pipeline capacity and gas takeaway have definitely stalled a lot of production and profitability for operators.

I think the most telling piece is the large retreat from oil/gas by banks and equity groups. Credit isn’t near as easy to get as it once was for sure.


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[TheHammer]

I think so. We’ve fracked ourselves out of a job.

This. We’re to good at getting it. The price fluctuations we knew before are over.

[bphillips]

All depends on your location. If you’re in the Permian it’s business as usual. Prices aren’t really that low they’re just more stable. Also lots more people and shops have moved into the Permian long term versus just book time so they’re not having to outsource to as many mom and pops in other parts of the state to help with demand. Not near as much machining, service Co, or roustabouting is coming from other parts of the state anymore. If so it’s just for better lead times or availability


The drilling side is still constantly hiring out here

[BitBackShot]

It happened first in natural gas as fracking allowed for a much easier "on and off" of supply during periods of excess and shortage. Where gas used to trade from high 1s to low teens, it smoothed out the curve to a high 1s to low 5s at max with most of the futures contracts settling in between. You just don't see many of the violent rallies and violent sell-offs anymore. That's why John Arnold quit trading it.

[Bayouboy]

It is not just the price of oil. But, the crack spread has a lot to do with it when it comes to the refining side.

[BURTONboy]

I for one dont mind the steady price. I hated seeing it peak so high and then come crashing right back down. The last 10 years have been crazy. One thing I believe is, for now at least, the big offshore GOM work we got used to will not be for awhile. I dont think those platforms are worth building with all on the onshore production. Im sure this will change in the future, but for now, I see my work load being onshore work.

This is from an electrical designers standpoint with 11 years in the business.


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[Artos]

How do the current refineries come into play & can someone explain what percentage of light crude vs heavy is needed to produce the various fuels?? I don't quite fully understand but have heard the current refineries are more geared towards still needing a % of heavy crude vs what our frackers produce??

Also, I've heard some chatter about logistics & getting the oil (to the refineries) & mostly the NG (to the various LNG's along the TX coast) via new pipelines from the permian??

[Guardian Reaper]

I do DOT work for a company that has patented a smaller gas compressor. The unit is less expensive for companies to rent and has shown it is more efficient to operate and on a lot of wells it has been able to show an increase in production. Pretty much a niche that was filled and with gas prices low, the company is very busy.