In light of the oil glut, Exxon has announced that it’s moth-balling some rigs and cutting capital expenditures.
That fits a bigger trend … supply high, demand slow, prices down, production down.
From a supply side, the economics of the business raise some interesting questions …
First, the hardcore production economics … every production source is losing money at $30 per barrel.
A couple of observations …
1) High cost Saudis: I was surprised to see the high Saudi costs. I always assumed that the Saudis were low cost producers. Not so.
2) Shale boom & bust … What a roller-coaster ride in places like North Dakota. When prices were over $100 and supplies were tight, shale makes sense … both from the security perspective (i.e. energy independence) and pure economics (i.e. profits and jobs).
3) The Iranians … With sanctions lifted, they’re back in the game … even with production costs far higher than the current market price.
The Iranians are the wildcard … with emphasis on “wild”.
Obviously, they need to rebuild their market share … and, they’re best situated for a price war?
First, they have a cost advantage over their political foes: the Saudis and U.S. frackers.
Second, Obama’s “deal” handed the Iranians $150 billion.
That’s a big price-war chest.
Do you think that the Administration considered these implications when crafting “the deal”.
I’m betting the under on that one.