09-05-2015, 06:35 PM
I have been happy to take the buying opportunities with the current market correction; however, I think oil is a more complicated situation. I emphatically believe the price of oil will go back up; however, I am concerned that earnings will not recover as well. The oil companies are have a real problem replacing reserves.
On a general level, the oil companies have been drastically reducing capital expenditures. The result will be that when the current glut is over, the capacity will not exist to supply the shortage. The oil companies will have to drastically increase their capital expenditures. Trying to revive a cut capital expenditure will cost much more than if the capital expenditures were kept stable.
I think the returns from fracking will be especially impacted. The price of production is highly dependent upon the concentration of the oil and gas. I am concerned that the current low oil price will primarily result in the fracking sweet spots being depleted with little or no profit, leaving much more expensive fracking opportunities. This will impact the smaller oil companies more than the majors, since the majors are not as involved with fracking.
On a general level, the oil companies have been drastically reducing capital expenditures. The result will be that when the current glut is over, the capacity will not exist to supply the shortage. The oil companies will have to drastically increase their capital expenditures. Trying to revive a cut capital expenditure will cost much more than if the capital expenditures were kept stable.
I think the returns from fracking will be especially impacted. The price of production is highly dependent upon the concentration of the oil and gas. I am concerned that the current low oil price will primarily result in the fracking sweet spots being depleted with little or no profit, leaving much more expensive fracking opportunities. This will impact the smaller oil companies more than the majors, since the majors are not as involved with fracking.