What's really driving the oil market?

Two sides are debating whether or not global supply will overtake demand.

By Jim Cramer Dec 11, 2013 12:08PM

Oil pumps © Chaiwat Photos/Getty ImagesDoes it bother anyone else that just a few days ago we were hearing that the glut in U.S. oil is now going to cause a gigantic widening in the spread between Brent and West Texas and all that's happened since then is that the two have converged?

 

Does it bother anyone else that not one, but two, major firms upgraded the refiners at precisely the moment when the convergence started?

 

Has it become perceived wisdom that it might not actually be true that the oil in this country is going to become more and more bountiful?

 

These are all of the issues that need pondering now that West Texas is back to $98 and the move below $90 that so many had been expecting seems to be way off base right now. The Street on MSN Money

 

I think there's a war going on under the surface of this oil market. On the one hand there's the Mark Papa school of thought. Mark's the amazing oil man who built EOG (EOG) into the greatest exploiter of the two most important shales of the era: Eagle Ford and Bakken. His company is the fastest growing of the major independents and even as he is retiring, he's still finding oil, including a big prospect in the Deleware Basin of the Permian. Mark's been saying that the era of free money, where more and more oil is found and sold at higher and higher prices, might be over. The big finds are going to start peaking, he believes, and at the same time the price domestically may no longer be going up because we are producing so much oil.

 

On the other side is the duo of Scott Sheffield and David Demshur, who believe that the best is yet to come. No, by far the best is yet to come. Pioneer's (PXD) Sheffield says his company is sitting on the second-biggest oil field in the world after Saudi Arabia: the Spraberry. Even though it was discovered in 1949, it still has far more oil in it than North Dakota's Bakken and the Eagle Ford of Texas. While that judgment does seem on the hyperbolic side, Demshur of Core Labs (CLB), the foremost reservoir mapping technology company, says it could very well be that big.

 

Sheffield's not all that concerned about demand either, meaning he doesn't think that the supply in the country or in the world will overrun demand any time soon.

 

To me this is the fulcrum energy issue when it comes to investing in oil and gas, not Keystone, not natural gas vs. coal and not even natural gas exporting. The latter have both become polemical and political, like taper-no taper, just more Washington parlor games at work. We already know that Cheniere (LNG) and perhaps Dominion (D) will be the only two really practical exporters of natural gas because they have the old infrastructure from when we were going to import it, and therefore it isn't too costly to turn them into export facilities. Keystone's been mooted by rail, as you knew it would be because President Obama wasn't going to say "yes" and the oil men aren't that stupid as to wait for him to do anything.

 

But if Sheffield is right then you buy Pioneer, Cimarex (XEC), Noble (NBL), Continental(CLR), Anadarko (APC) and a host of others. If Papa is right you simply have to hope for takeovers or switch to natural gas stocks, betting that the exporting that will start in 2015 and the desire of the EPA to shut all coal plants puts a $4 floor on natural gas.

 

Where do I come out? I think Papa's too negative, but Sheffield's too positive. Our oil fields are the envy of the world right now, which means the envy of the international companies who want in and will scoop up all of these companies if they have to. My argument's buttressed by the fact that the domestic oil price didn't collapse, but instead converged. I say buy 'em, not sell 'em, because oil in this country's not plummeting and that's the real tale of the tape. Jim Cramer on MSN Money

 

Action Alerts PLUS, which Cramer co-manages as a charitable trust, is long NBL.

 

Jim Cramer's Action Alerts Plus: Check out this charitable trust portfolio and uncover the stocks Cramer thinks could be winners.

 

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68Comments
Dec 11, 2013 3:45PM
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The Folks that were controlling Crude Oil when Bush was President didn't all of a sudden Retire when Bush Left office. So for some Idiot to state a comparison for Bush at $4 gas to when it happened under Obama is pure BS. And here's why. Production has Soared while Demand has Declined, yet some moron wants folks to blame Obama or have the same conversation about $4gas concerning Obama.

The Same Greedy you know whats are manipulating Crude prices now are the same Greedy you know what that manipulated them under Bush. They only thing that's changed, there's far more Crude NOW and far less Demand. Now the Greedy you know whats are exporting our stuff overseas. Darn the needs of America. The American People are being Played for fools.
Dec 11, 2013 3:06PM
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Agreed. And another point - Even though domestic production is skyrocketing (alongside escalating bitumen production from Canadian oil sands) the price floor is probably around $80 per barrel for it to be sustained (whether you're talking shale oil production or oil sands). Alaska is another weird but interesting player in all this (more here ) because they could double their production in no time but they seem to be bogged down in red tape for the time being --- but sustained high oil prices will likely fix that to some extent considering the unbelievable shale oil (and heavy oil) deposits sitting there waiting to be tapped.

Dec 11, 2013 4:12PM
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JIM - RAH! RAH! SIS-BOOM-BAH!  OIL PRICES ARE GOING TO $30 TO $40 A BARREL WITHIN 5 YEARS.  I REMEMBER BACK IN 1979 TO EARLY 1982 - OIL (AND GASOLINE PRICES) WERE AT RECORD HIGHS.  THE PUNDITS WERE CONFIDENT WE WERE GOING TO PROBABLY RUN OUT OF OIL BECAUSE OF ITS 'SCARCITY".  THEN WE KNOW THAT THE BOTTOM FELL OUT OF OIL BECAUSE OF THE RECESSION AND THE FACT THAT VEHICLES WERE BECOMING MUCH MORE FUEL EFFICIENT.  MOREOVER, OIL IS NOT "SCARCE" AND WE ARE ACTUALLY PRODUCING MORE TODAY IN AGGREGATE THEN EVER.

 

THE VERY SAME CYCLE IS RECURRING NOW.  AS LONG AS THERE IS OIL TO BE FOUND AND TAPPED -- SOMEONE WILL DO IT!  OILMEN ARE AGGRESSIVE AND KNOW THEY MUST "STRIKE WHILE THE IRONS ARE HOT"... IN DOING SO, THEY WILL DRIVE UP SUPPLY AND DRIVE DOWN THE PRICE OF OIL UNTIL THE WHOLE PROCESS STARTS OVER... ONCE AGAIN!

Dec 11, 2013 4:51PM
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Cramer doesn' t have a clue. Two weeks ago he said oil was up because oil inventory was down 2 million barrels. BUT gas inventory was up 1.2 million barrels. Where do you think the oil went ? Today they say gas inventory is " Unexpectedly " up. unexpected buy who ? only a moron. Its a shell game. If you do not believe it check the post under his. " oil falls on huge build up of gasoline supplies "
Dec 11, 2013 4:21PM
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One thing no one is taliking about is the fact we have a limited amount of storage and refineries....so no matter how much production....it has to go somewhere....so the people get hit with rising gas prices and rising oil prices....and the oil companis win again...like always...big business wins...consumers lose. simple economics.

Dec 11, 2013 4:45PM
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Jingle Bells, Jingle Bells, Jingle Balls, Jingle Falls, oh bullshidt....this is a waste of music.
Dec 11, 2013 4:08PM
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Regulate oil like the utility it is. Limit profits to cost of production plus 15%. End of rip off.
Dec 11, 2013 4:55PM
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Wow, it seems you have all the answers but will not come out and say, The big bad oil giants refuse to give the consumers a break and that these predictions of price plummeting is all it will ever be, predictions and do not get your hopes to high but rather get use to the norm and more speculation tales of horror to increase, not decrease prices. Now that would be more realistic. No one in their right mind will ever believe we are heading to gas prices of 0.39 a gallon or a $1.00 a gallon or even possibly $2.50 a gallon. You would basically telling the oil companies " The Party is over " then watch a precious refinery go off line or a mysterious fire at one or two of them or some other lie will be told that OPEC shutdown for a Muslim holiday or be glad you are not paying $5.00 a gallon so shut up and stop whining.
Dec 11, 2013 4:15PM
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Wall street is beginning to worry because Bernanke just bought a pet Tapir. They make great house pets.
Dec 11, 2013 5:32PM
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We are all better now.... through the summers of recoveries and into the winter of prosperity.. Tappers away my boys tapper away.....

 

sung to the tune of anchors aweigh.........

Dec 11, 2013 1:40PM
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There are several ways to invest in oil Steve....Many of them people don't even think about..imo.

Along with the overall investment that may appreciate fairly good are the dividends that are usually higher then a lot of other Companies....

You can Invest in Exxon, Total and Shell....

But there are Pipelines, Refiners, Truck and Rail transportation, along with Retail operations..

The Oil biz, touches a lot of other businesses;

Sometimes in a good way, for a smaller investor.

Dec 11, 2013 6:01PM
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Today the Republicrats (the substance of establishment Republicans and Democrats) announced they are joining hands and putting on their Uncle Sam pervert suits to increase spending and the deficit -- you know -- fight off the Tea Party and BEND YOU OVER AND PULL A TRAIN.

So -- keep watching the oil price hand puppet while you lose again.

Dec 11, 2013 5:09PM
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  the Market it'll fall for any reason tapier or no tapiers,, dam we need to go taiper huinting,, and shoot em all,, along with the other piggies
Dec 11, 2013 4:49PM
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I was thinking.

 

Tappers Swell tappers Swell ..... tapper all the way.

Dec 11, 2013 4:30PM
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Hey Little Beav....... Sing us a nice Christmas song about a Santa Claus rally.
Dec 11, 2013 10:12PM
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 Blue cars2,  I'm a little late to this party but can't help myself have to interject anyway. Gasoline was under 2.50 a gallon a short time ago in my state after cranking the taxes out, in the low 2.60's now. Gas pricing was near $4 not all that long ago. Remember last summer the thinking was $5 gas or higher, never came about. So all is not in one direction as in sometimes seems when you look at it closer. Yes crude to gasoline production is more costly due to deeper wells, more difficult completions, ever more completed environmental standards increased shipping cost erc. I'm not saying this is a free market industry, it's not entirely. The oil companies are not always the strongest players at least in all places. The countries they work in often have the top hand.
Dec 11, 2013 12:36PM
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Pure GD, speculation....what else, no other explanation needed..

Along with Greedy friggin' Dealers.

Dec 11, 2013 1:33PM
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" I think Papa's too negative, but Sheffield's too positive." ...... Bobo is on the fence so much he has a picket stuck up his azz............ "A  rse of Pain" ............ LMAO
Dec 11, 2013 4:17PM
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We have all been told that the cost of production can vary between shale, offshore, Middle-east, etc. However, why would anyone trust their figures, these guys are freaking Crooks. That should be clear to everyone. Then refineries, which can be totally separate entities, have to deal with the Spread.

Bottom line is we have paid through the Nose at a time when good paying Jobs are scare and costs of many things are spiraling out of control. Not many folks can play Oil Stocks when most of our Jobs are being sent overseas. Those that can, most don't worry about the cost of Gasoline.

Bottom-line, funny business has been going since at least 1973 Oil Crisis.

Dec 11, 2013 3:55PM
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"How much does it cost to produce crude oil and natural gas?

A measure of the total cost to produce crude oil and natural gas is the upstream costs. The upstream cost includes lifting and finding costs. Lifting costs are the costs to operate and maintain oil and gas wells and related equipment and facilities to bring oil and gas to the surface. Finding costs are the costs of exploring for and developing reserves of oil and gas and the costs to purchase properties or acquire leases that might contain oil and gas reserves.

Costs for Producing Crude Oil and Natural Gas, 2007–2009
2009 Dollars per Barrel of Oil Equivalent1"

  Lifting Costs Finding Costs Total Upstream Costs
United States – Average $12.18 $21.58 $33.76
    On-shore $12.73 $18.65 $31.38
    Off-shore $10.09 $41.51 $51.60
       
All Other Countries – Average $9.95 $15.13 $25.08
    Canada $12.69 $12.07 $24.76
    Africa $10.31 $35.01 $45.32
    Middle East $9.89 $6.99 $16.88
    Central & South America $6.21 $20.43 $26.64

15,618 cubic feet of natural gas equivalent to one barrel."

"Last reviewed: November 1, 2012"

http://www.eia.gov/tools/faqs/faq.cfm?id=367&t=6


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