Edmonton Journal – Lamphier: Oil prices post first weekly gain in two months

EDMONTON – Oil prices rose this week, ending a losing streak that stretched back to the end of September.

It wasn’t a big move — a gain of less than one per cent — but Friday’s close of $76.51 US a barrel in New York could signal that a price floor of roughly $75 has been reached after months of bloodletting.

The triggers for Friday’s uptick? A vow of further stimulus measures by the head of the European Central Bank, and a surprise interest rate cut in China, the world’s top oil importer and fastest-growing market.

Despite no evidence of looming production cuts from the Organization of Petroleum Exporting Countries (OPEC), which meets Thursday, the moves ignited the entire resource sector, driving energy, base metals and forestry stocks higher.

That said, in contrast to the meltdown in crude prices during the financial crisis and recession of 2008-09, there has been a noticeable absence of panic in Alberta’s oilpatch this time around.

Most industry players have taken the 30-per-cent drop in prices over the past few months in stride, perhaps because they privately knew months ago that the growing glut of U.S. supply would eventually push prices down.

So how long will the current low-price environment last? Perhaps six months, perhaps a year. That was the general view at the annual Sequeira Partners Energy Services Symposium, where about 200 owners and execs from the oil and gas services gathered to compare notes.

So what else did I learn? Several interesting things.

First, contrary to public perception, all oilsands projects aren’t created equal. Some generate a profit even at current prices. The production cost curve runs from a low of under $40 (Cdn) a barrel to a high of $140-plus.

Second, thanks to the weak loonie, the current $67 (Cdn) per barrel price for Western Canada Select, Alberta’s benchmark grade, isn’t wildly out of line with WCS prices over the past couple of years.

Third, while oil and gas drilling activity in Western Canada generally rises or falls in line with commodity prices, it’s a different story in the U.S., where activity levels soared despite flat or falling prices.

Fourth, if Hillary Clinton succeeds Barack Obama as president in 2016, as seems probable, she’s more likely to approve Keystone XL than her predecessor, according to U.S. oilfield services guru Richard Spears, the symposium’s keynote speaker and a managing director at Tulsa, Okla.-based Spears & Associates Inc.

Here’s a quick synopsis of what else Spears had to say:

On Saudi Arabia’s move to discount oil prices:

“There’s one place in the world where demand is growing and that’s China. And there’s one place in the world where output is (exploding), and that’s the U.S. So if you’re Saudi Arabia you can solve two problems with one move. You drop the price of the commodity, you make demand in China go up, and you make output in the U.S. go down. Who is the only guy out there who can then fill the supply gap? It’s the Saudis.”

On Warren Buffett’s role in delaying Keystone XL:

“You just know that Warren Buffett was behind the scenes in (Obama’s) denial of the pipeline permit. Who owns the railroads? Warren Buffett. Who lives in Nebraska? Warren Buffett. So he gets Nebraska to be the one state to say ‘Don’t build a pipeline, we’re scared,’ even though there’s hardly anything in the world that’s safer than the operation of a pipeline.”

On how Hillary Clinton will govern if she becomes president in 2016:

“I’m a Republican so I’ll never vote for her, but I expect her to win. When her husband was president, he was a pragmatic guy. He generally did what was good for the economy and for jobs, and she’s more like her husband than her former boss (Obama). So I believe there’s a better chance (she’ll approve Keystone XL).”

On the sustainability of higher U.S. shale oil production:

“We’ve spent the past four years drilling oil wells in places we thought didn’t have oil anymore, and I think with four years of experience in the U.S., we have just got started. We are not anywhere close to tapping our available resources.”

On the outlook for oil prices:

“Our firm has for a whole year thought next year’s price would be $85. Because we’re producing lots of oil in the U.S., we knew prices would fall. The fact the price got to $75 so quickly was not a surprise, either. Now that the price has stayed at $75 for a while, is that the new price? Maybe. We know it won’t go back to $95. It will be lower. We still think it’s $85.”

On how the Halliburton-Baker Hughes deal will create opportunities:

“It’s going to be a boon for anybody who is in the business of competing against these guys, because a massive merger like this distracts the management of both companies. If you’re a company providing a similar service that’s the time to strike. Meanwhile all the lieutenants working for them are wondering ‘Do I still have a job when the dust settles?’ ”

glamphier@edmontonjournal.com