Podcast Summary: Odd Lots – The Oil Industry's Double Whammy of Higher Costs and Lower Prices

Podcast Information:

• Title: Odd Lots
• Host/Author: Bloomberg
• Description: Bloomberg's Joe Weisenthal and Tracy Alloway explore the most interesting topics in finance, markets, and economics. Join the conversation every Monday and Thursday.
• Episode: The Oil Industry's Double Whammy of Higher Costs and Lower Prices
• Release Date: May 15, 2025

Introduction

In this episode of Bloomberg's Odd Lots podcast, hosts Joe Weisenthal and Tracy Alloway delve into the tumultuous state of the oil industry, exploring the dual challenges of rising operational costs and declining oil prices. Joined by expert guest Peter Turzakian, founder and president of Studio Energy, the discussion provides a comprehensive analysis of current market dynamics, technological advancements, and geopolitical influences shaping the sector.

Current State of the Oil Industry

Joe Weisenthal opens the conversation by highlighting a temporary lull in trade-related headlines, suggesting it's an opportune moment to assess the evolving landscape of industries recently subjected to volatility. He remarks:

"We're never going to run out of fresh material and fresh stories to talk about."
[01:32]

Tracy Alloway concurs, emphasizing the need for investors, executives, and industry watchers to reevaluate the new environment, albeit with the caveat that change remains a constant.

The Double Whammy: Higher Costs and Lower Prices

The core theme of the episode revolves around the "double whammy" affecting the oil industry: escalating input costs coupled with declining oil prices. As of April 13, 2025, West Texas Intermediate was priced at approximately $62.96 per barrel. Peter Turzakian provides insight into the profitability at these levels:

"At $62.96, it's marginally profitable for a large part of the industry, but higher-cost producers are starting to fall off the map."
[04:53]

He further explains the strain on lower productivity wells and the uncertainty surrounding the sustainability of current price levels.

Input Costs and Tariffs

Tracy raises concerns about the funding environment, drawing parallels to the shale oil boom of the mid-2010s. The discussion shifts to how energy companies are now prioritizing capital discipline and returning value to shareholders amidst tighter funding conditions.

Peter elaborates on the shift in equity funding since the shale revolution, noting:

"The sentiment is now 'I'm going to just watch this. I've seen this movie before.'"
[07:05]

He explains that the era of cheap capital, which fueled aggressive drilling and expansion, is over, making another "drilling war" unlikely under current economic conditions.

Pipeline Politics and LNG Exports

The conversation transitions to the state of pipeline politics, particularly in Canada. Peter notes a policy shift under Prime Minister Mark Carney, who is open to expanding pipeline infrastructure, especially for liquefied natural gas (LNG) exports:

"What was considered almost unthinkable, say five years ago, is all of a sudden invoked."
[22:24]

Tracy and Joe discuss the implications of this shift, considering its impact on domestic natural gas prices and the broader energy market.

Technology and Talent in the Oil Industry

A significant portion of the episode addresses technological advancements and their role in optimizing oil extraction and reducing costs. Peter describes the evolution from vertical wells to sophisticated horizontal drilling techniques:

"Now the subsurface looks like a fork. It doesn't look like a single well."
[18:22]

Additionally, the discussion touches on the talent landscape, highlighting challenges in attracting and retaining skilled workers amidst industry perceptions and technological automation reducing workforce needs.

OPEC Dynamics and Political Influence

Tracy brings up the influence of political administrations on oil prices, noting a counterintuitive trend where oil prices tend to perform better under Democratic presidents despite the industry's Republican leanings. Peter provides a nuanced perspective:

"The boardroom is now about watching this. Shareholders are deciding whether or not the industry is going to go gung ho."
[09:00]

He explains the complexities within OPEC, especially with countries like Kazakhstan overproducing, leading Saudi Arabia to ramp up production to maintain market stability.

Future Outlook

Looking ahead, the guests discuss the potential for US onshore oil production to have peaked at current price levels (~$65 per barrel). However, Peter remains open to future growth contingent on technological breakthroughs and favorable geopolitical conditions:

"If the price goes back up to $75, you'll start to see more growth."
[41:38]

The role of LNG as the "hydrocarbon fuel of the future" is also emphasized, with expectations of expanding global demand and infrastructure supporting its rise.

Conclusion

As the episode wraps up, Joe and Tracy reflect on the multifaceted challenges facing the oil industry, from capital market dynamics to technological innovations and geopolitical strategies. The discussion underscores the precarious balance the industry must maintain to navigate higher operational costs and fluctuating oil prices.

"How do you entice capital back into an industry which has been burned multiple times and which, as Peter said, at the current level of oil prices, just doesn't necessarily work."
[44:18]

The hosts conclude by acknowledging the uncertain yet evolving landscape of the oil market, leaving listeners with a keen understanding of the intricate forces at play.

Notable Quotes:

• "At $62.96, it's marginally profitable for a large part of the industry, but higher-cost producers are starting to fall off the map." – Peter Turzakian [04:53]

• "The sentiment is now 'I'm going to just watch this. I've seen this movie before.'" – Peter Turzakian [07:05]

• "What was considered almost unthinkable, say five years ago, is all of a sudden invoked." – Peter Turzakian [22:24]

• "Now the subsurface looks like a fork. It doesn't look like a single well." – Peter Turzakian [18:22]

• "If the price goes back up to $75, you'll start to see more growth." – Peter Turzakian [41:38]

• "How do you entice capital back into an industry which has been burned multiple times and which, as Peter said, at the current level of oil prices, just doesn't necessarily work." – Tracy Alloway [44:18]

This comprehensive summary encapsulates the key discussions, insights, and conclusions from the episode, providing a clear and engaging overview for those who haven't tuned in.