As crude oil prices take a beating, with Saudi Arabia predicting that prices will stabilize at $60 per barrel, we head to Norway, where state-run giant Statoil is poised to come out ahead of a game that has everyone panicking amid the geopolitical OPEC-versus-America banter.
On Wednesday, Brent Crude was under $70 and WTI was at $66 after the Saudis announced that prices would likely drop further and stabilize at $60, and after a drop in US crude inventories the day before had brought crude futures up a bit.
As of Wednesday, Brent Crude was down 44 cents to $69.48, having fallen 37% this year and 10% in the past week alone. Now, Saudi Arabia is planning to cut January prices for oil to the US and Asia, after having already lowered them to $71 per barrel in November.
State-owned Saudi Aramco Oil Co. said on Thursday it had reduced its official selling prices for all oil grades bound for Asia in January by between $1.50 and $1.90 a barrel over December prices, effectively dropping prices for all crude grades to the U.S. by between 10 cents and 90 cents a barrel.
This additional move is being perceived in the US as a declaration of market war on US shale production.
So far, as Oilprice.com reported earlier this week, this so-called market war has seen new US oil and gas well permits drop by nearly 40%, indicating a slow-down in future exploration and production.
Also this week, the US Federal government released its “Beige Book” report, commenting on economic conditions as a result of freefalling oil prices over the past month.
The general sentiment is that the US economy has not yet been impacted by the falling price of oil, and drilling activity does not seem to be slowing—yet.
The Dallas Fed noted that “Growth in Texas drilling activity was concentrated in the Permian Basin in West Texas; drilling activity outside of the Permian Basin was little changed. Outlooks for next year, though still positive, were less optimistic than in the prior report, and contacts said that budgets were being revised and capital expenditures are expected to decline in response to lower oil prices."
The challenge for investors right now is to pick out who will best survive the oil price slump, and who will be the strongest coming out of the gate. This probably means looking at a state-run giant whose energy stocks have a tendency to produce income even in the worst of times, whose geographical diversification and prowess in operating in tough terrains poises it not only for survival but for big gains once oil prices rebound.
This is Norway’s Statoil (STO)—and the Wall Street Daily this week has laid out all the benefits of betting on this giant in these challenging times, noting that the “global powerhouse” is prepped and ready to benefit from a rebound in global growth, oil prices, natural gas prices, geopolitics and technology.”
Not only does Statoil have massive oil reserves and is poised for over $200 billion in revenue over the next few decades (at current prices) and from just one of its fields, it also made a discovery last year in the Iceberg Alley that could produce up to 600 million barrels of oil. Statoil's diversification is also mind-boggling, and this will help significantly when geopolitics morphs into more conflict, catching producers off guard. This is what is happening in Europe, where the ‘gas war’ with Russia will benefit Statoil, a smaller but increasingly important supplier here.
The company also gets a fairly good rap environmentally, partnering with General Electric (GE) to determine the possibility of replacing water with carbon dioxide in the increasingly maligned process of hydraulic fracturing.
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By. James Stafford of Oilprice.com