Oil Prices Summed Up: America vs Saudi Arabia

By Thomas Miller

Thursday, October 16, 2014

The carnage continues. Crude oil prices absolutely mauled this week leaving traders and oil company executives shaking their heads and wondering where the bottom is, and for how long. Chris Faulkner, CEO of Breitling Energy in Dallas was on CNBC yesterday talking about his thoughts on where this might all shake out.

In a nutshell, Chris thinks there’s support at $80 for WTI, but we penetrated that in pre-market trading prior to Wednesday’s open. If it breaks, which he thinks is likely, we could be looking at $75 or even lower.

As only Chris can put it, he told CNBC he thinks it’s like two trains, the U.S. and Saudi Arabia, steaming down the same track straight at each other and neither letting off the throttle.

We also had a commodities trader on Powering America Radio today who not only spotted the cracks in the infrastructure as early as the summer, but according to his charts and graphs said the bottom looks like $72.50.

John Hofmeister, former Shell President of U.S. operations said he suspects this is the Saudis testing where the U.S. breaking point is. He speculates they want to drive the price down and keep it down long enough to see some U.S. rigs come down and our shale crude stay in the ground.

The Saudi’s aren’t stupid, and they know Bakken oil is expensive to get out of the ground. You can bet they also know there’s a $12/barrel premium to ship it out of North Dakota.

Parker Hallam at Crude Energy is optimistic we’re closer to a bottom. He noted to me today that he feels the 25-percent tumble is excessive and at this point is likely no longer based on any sound fundamentals. Parker expects there to be a bottom soon and even perhaps some recovery from the steep drop. Crude Energy is in the process of completing a well in the Permian Basin in West Texas and says he has no plans of altering his drilling plans whatsoever. Permian wells are close-by all the needed infrastructure to take the oil and gas away from the fields, so the Bakken transport premium doesn’t apply.

Where we go from here, only the tape will tell. I like what JB reminded our radio audience this afternoon: The market can be ‘wrong’ longer than you can be solvent.