T. Boone Pickens recently sat down with Maria Bartiromo for an interview at the Milken Global Conference.
Oil has come back 27% from its low. What a break for the consumer! Boone still believes oil will go to $70 by the end of 2015. We went from 1,509 oil rigs in December 2014 to less than 700 rigs operating today. Boone said then that half the rigs would shut down, and that’s happened. “I’ve got three rigs and they’re all shut down.”
Maria asked if that level of production “will impact the broader story of jobs in America?” Boone answered, “Don’t panic,” he said to Maria. “I’ve told you before, ‘don’t panic.’ Last week,” he said, “was the first week we drew at Cushing, [Oklahoma].” Reuters reported: “Oil prices hit the highest this year on Wednesday after the first crude stock draw in five months at the U.S. Cushing, Oklahoma hub suggested an oil glut may be starting to ease.”
Last year, the forecast was for worldwide demand to be an additional 1.45 million barrels of oil per day. The actual number was only 660,000 additional barrels per day. The economies in Europe and Japan didn’t grow as much as projected so they didn’t need as much oil. “But today, you’re running on 1.5 million barrels of additional oil per day” as demand has crept back up.
Maria then asked about heavily leverage companies drilling in the shale deposits. “When the price dropped to $45 they had to be under serious pressure,” Boone said. “Watch the rig count. That’s your indicator.” The other side of that coin is that the valuations of some drilling companies have dropped to the point that they are attractive to other companies that weren’t so heavily leveraged.
“These things have happened 20-25 times in my career,” Boone said. “You have too much oil, you have a break in price. It falls until the market stabilizes.” But, he said, there’s one big difference this time: “The swing producer is the United States, not the Saudis. The Saudis have made it very clear that they are going to continue to produce 9.6 million barrels a day; they’re not going to cut to stabilize; we are not going to cut to keep prices high, we are going to maintain market share.”
Boone went on to say that production cuts came from the United States “because of supply and demand and demand is growing because the price is low.”
“We went from four million barrels a day five years ago to 9.4 million barrels per day, so we’re the ones oversupplying the market. We did the same thing on natural gas.” Boone said gasoline prices at the pump will continue “to creep up,” and that oil would be in the $70 range by years end. He reminded Maria that he also said oil would be between $90 and $100 by the end of 2016.
“I’ve seen it all,” he said. “I started as a roughneck when I was 15 and got my degree in geology in 1951.”