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Cash-Strapped Saudi Arabia Hopes To Continue War Against Shale With Fed’s Blessing
Cash-Strapped Saudi Arabia Hopes To Continue War Against Shale With Fed’s Blessing
Two weeks ago, Morgan Stanley made a decisively bearish call on oil, noting that if the forward curve was any indication, the recovery in prices will be “far worse than 1986” meaning “there would be little in analysable history that could be a guide to [the] cycle.”
As we said at the time, “those who contend that the downturn simply cannot last much longer are perhaps ignoring the underlying narrative that helps to explain why the situation looks like it does.”
“At heart,” we continued, “this is a struggle between the Fed’s ZIRP and the Saudis, who appear set to outlast the easy money that’s kept US producers alive.” This is an allusion to the fact that the weakest players in the US shale industry – which the Saudis figure they can effectively wipe out – have been able to hold on thus far thanks largely to accommodative capital markets.
But persistently low crude prices – which, if you believe Morgan Stanley, are at this point driven pretty much entirely by OPEC supply – are taking their toll on producers the world over. That is, the damage isn’t confined to US producers.
In fact, the protracted downturn in prices is slowly killing the petrodollar and exporters sucked liquidity from global markets for the first time in 18 years in 2014. To let Goldman tell it, a “new (lower) oil price equilibrium will reduce the supply of petrodollars by up to US$24 bn per month in the coming years, corresponding to around US$860 bn” by 2018.
As Bloomberg noted a few months back, the turmoil in commodities has produced a “concomitant drop in FX reserves … in nations from oil producer Oman to copper-rich Chile and cotton-growing Burkina Faso.”
And don’t forget Saudi Arabia which, as you can see from the chart below, isn’t immune to the ill-effects of its own policies.
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Layoffs, Spending Cuts Permeate Alberta’s Oilpatch On Quarterly Results
Layoffs, Spending Cuts Permeate Alberta’s Oilpatch On Quarterly Results
CALGARY – There was a splattering of red ink in the oilpatch Thursday, as the steep drop in oil prices weighed on the bottom lines of some of the energy sector’s biggest names in the last three months of 2014.
Oilsands producer Cenovus Energy Inc. (TSX:CVE) said it’s cutting its headcount by 15 per cent, mostly contractors, amounting to 800 positions. Husky Energy Inc. (TSX:HSE) also said there’s been a “small” reduction in its workforce, but declined to get more specific. And Precision Drilling Corp. (TSX:PD) said there’s not enough work these days to keep its crews busy.
“I believe we are in for much greater volatility in oil prices for the foreseeable future and that’s why you’ve seen Cenovus preserve cash by moderating our growth and reducing our workforce,” Cenovus CEO Brian Ferguson said.
Crude prices have been at around the US$50 a barrel mark for much of this year so far, after having hit US$107 a barrel last summer. The drop intensified toward the end of 2014.
Cenovus posted a net loss of $472 million, widening from the previous year’s loss of $58 million.
The results for the quarter included a $497-million charge related to its Pelican Lake oil project in Alberta due to the drop in oil prices and a slowing of the development plan for the project.
Some expansion work at Cenovus’ flagship Foster Creek and Christina Lake oilsands projects is winding down, though phases that are further along in development are continuing as planned.
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