Is it 2008 all over again?
Heh, if you're the Saudis it is!
Saudi Arabia just slashed prices for their Arab Light crude oil to prices not seen since December 2008.
A decade ago would you ever imagine that a U.S.-led oil boom would cause a panic amongst OPEC nations?
Well, my friend, it's happening right in front of our eyes. Notably, it's a tough time to rejoice with many of our favorite oil and gas stocks heading lower on lower energy prices and a general market pullback. But, really, you've got to sit back and really enjoy being an American in today's energy market.
It's not just Saudi Arabia rushing to lower oil prices either. "State-run National Iranian Oil Co." Bloomberg reports, "cut official selling prices of its crude to buyers in Asia for November."
Saudi Arabia and Iran rushing to lower oil prices? Wow! Certainly not a sight you'll see every day… Or even every decade! Other OPEC nations will likely follow too. Nigeria? Angola?
The whole "end of OPEC" dialogue you've heard murmuring in the background since 2008's budding shale boom is really happening right in front of our eyes. And you won't see me tearing up over it, either.
Today we live in a new oil world—one where there's pressure on OPEC and potential in America.
And I'm not all smiles around the office these days.
At I type, WTI crude oil trades hands at $84 a barrel. Brent crude for December delivery is $89.
"Price Drop Tests Oil Drillers" the B-section of today's Wall Street Journal reports.
So while lower oil prices are good for you, me and millions of U.S. drivers (heck, I got gasoline last week for $2.94 a gallon)—the same feel good story isn't being felt in Houston boardrooms.
The pullback in shale producer prices is truly warranted. It's not easy to say, that's for sure. But with ambiguity in the future price of oil—or at least in analysts' minds—there's plenty of reason why traders are shying away from America's shale players.
That's all well and good in the short term. But this pullback won't last. While the globe figures out new supply and demand dynamics for oil, we'll come to a new support level for prices. Remember, although we're seeing a fortuitous burp of extra oil these days, there's plenty of long-term support for prices.
That said, oil prices will level out (likely around $85) in due time. Maybe a week or maybe a few months. But when they do it will be brilliantly clear that today's well-run shale oil producers are plenty economic around $85 oil.
You see, the market is treating many of these shale players like they are "marginal" oil producers (you know, companies that are on the cusp of profitability that live and die with a dollar change in the price of oil.) That's simply not the case. Break even prices in the sweetspots are closer to $50. So you tell me if producers can still make a buck at $85.
This is a high conviction idea on my part. I know that the shale industry is here to stay. . .and thrive. But with oil prices feeling the heat it's not time to back up the truck just yet. Once we see oil prices level out I promise you a fistful of opportunities.
Matt Insley,
The Daily Reckoning
