I see that many oil company stocks took a huge nose dive starting in about late 2014. It’s still happening. Seems clear that oil as a fuel is becoming less important as alternatives are developed and promoted. And geo-political events have a large impact on the oil corporations. But my question is what event or events happened at the end of 2014, of significance to the entire industry, that has caused this major downturn in its fortunes?
OPEC ramped up production because it is controlled by the Arab states, who wished to put the squeeze on Iran and Russia for larger political reasons. This caused gas prices to go down and, thus, stocks to do the same.
It has nothing to do with alternative fuels. There is no end to demand for oil in sight – that would require the total usage of gasoline in cars to go down. Alternative energy sources for the power grid or the mere existence of non-gas-powered cars isn’t enough; you need to change the actual quantity of gasoline needed over time, not what percentage of cars use it, or whether a power plant that doesn’t use gasoline is coal-fired vs. nuclear or something else.
What data says this?
From the Platts (“arab state” with star added, two for ‘gulf arab’)
Country
April’14
Difference
March’14
Feb.'14
Jan. '14
Dec. '13
*Algeria
1.15
0.02
1.13
1.14
1.14
1.14
Angola
1.65
0.05
1.60
1.67
1.62
1.72
Ecuador
0.53
0.00
0.53
0.53
0.53
0.53
Iran
2.85
0.00
2.85
2.82
2.78
2.75
*Iraq
3.25
0.10
3.15
3.35
2.96
3.02
**Kuwait
2.80
0.02
2.78
2.80
2.80
2.80
*Libya
0.21
-0.01
0.22
0.36
0.53
0.25
Nigeria
1.90
-0.06
1.96
1.98
1.95
1.92
**Qatar
0.73
0.00
0.73
0.73
0.73
0.73
**Saudi Arabia
9.65
0.05
9.60
9.70
9.76
9.80
**UAE
2.70
0.00
2.70
2.73
2.75
2.74
Venezuela
2.30
-0.01
2.31
2.30
2.32
2.32
Total
29.72
0.16
29.56
30.11
29.87
29.72
[quote]
because it is controlled by the Arab states,
[quote]
It is not “controlled by the Arab states”… this is assumes falsely there is a single body of arab states.
dominated by the Saudis and the gulf arab states, there is a more accurate statement.
If you mean the Saudi Arabia, not the arab states, yes this may be correct - it is unclear but it may be correct although this essentially political analysis is not the one favored by the professional analysts.
The wider arab producers outside of the gulf, the Algeria for example, have interests in oil production closely aligned with the Iran and vote with them. Iraq also has this orientation.
Gulf Arab states has more coherence. and it is not their Arabness that makes the key, it is “small population of citizens, high reserves” states contre “large population of citizens, smaller per capita reserves” sates.
to speak of ‘the arab states’ is living in 1970s stereotypes.
It is widely thought but it is not actually known that the Saudis have decided to defend market share and use pricing to strategically drive out competition. It may also be aimed at the IRan, but this tension of
Of course one can talk about Arab states emptily also.
OK, mistaken attributes aside, I think that **Haberdash **reminds me of the 2014 events surrounding Russia’s adventures in Crimea and the larger response to it, which included efforts at putting pressure on Russia via a change in the balance of who’s getting oil from whom.
This is a most unbelievable discussion.
Using U.S. per barrel prices, oil was $105 US in July of 2014. By January orf 2015 it was $45. US/ barrel. When your only asset has depreciated by over 50% , how can the stock price stay up?
Fracking in the US and Canada has brought the overall world supply of oil up. Weak growth in Europe and leveling off of growth in Asia has brought anticipated global demand down. This has led to the price of oil dropping. Much of oil companies profits are derived from selling oil.
Huh? been under a rock the last year or more?
This. The USA has apparently become the largest oil producer in the world, thanks to fracking - new oil extraction technique. The Midwest is awash in shale oil - rather than rock domes with oil trapped in the tops, it’s vast layers of shale with oil embedded.
In response to higher production, normally the Saudis would cut back to keep supply in line with demand. However, this was a major realignment of the market. Even if the Saudis stopped production it still would not bring supply down enough, and the intimation was that US supply would keep growing. The Saudis don’t see an upside in keeping prices up - they lose customers they may never get back, they take a hit so others get more money. Plus, two for those others are Iran and Russia, it was a bonus to apply financial screws to them - Iran is the Saudi rival, and Russia is causing problems for the USA with their Ukrainian adventures.
But meanwhile, the future prospects for oil exploration are poor, the future price appears will stay low for the foreseeable future, so revenue is expected to be down for oil companies too; and they won’t be putting much money into more exploration, especially of esoteric sites like offshore that need high oil prices for payback; and any such sites they do have may be losing money for the next while. So oil companies, drilling companies, exploration services - all have dropping share prices.
As an added irony, some fracking was done on the assumption of high oil prices, so even some US fracking sites are losing money - but it’s more cost-effective to keep going and lose some money than to stop production and lose the whole investment.
If you look at oil stock prices over the last few years, you’ll see a pretty sudden and striking drop in prices, all around the same time - late 2014. It doesn’t seem to me that such a downturn would reflect a steadily growing increase in world supply, but rather it seems to be a response to a single event or closely allied series of events. I had forgotten the Russian incursion into Crimea which, I think, had a large effect on the supplies of fuel in Europe and the balance of trade in petroleum. It was probably a large reason that oil prices underwent a significant shift.
If the question is about **late **2014, then why waste our time with numbers from **early **2014? The proper numbers were there at the very site you linked to.
Country
May '15
Difference
Apr. '15
Mar. '15
Feb. '15
Total
31.11
0.18
30.93
30.72
29.92
So production did indeed go up over early 2014 to early 2015.