The Oil Industry's Double Whammy of Higher Costs and Lower Prices

SPEAKER_2 (0:02)

Bloomberg Audio Studios, podcasts, radio, news.

Joe Weisenthal (0:18)

Hello, and welcome to another episode of the Odd Lots podcast. I'm Joe Weisenthal.

Tracy Alloway (0:24)

And I'm Tracy Alloway.

Joe Weisenthal (0:25)

Tracy, I think, at least temporarily, some of the trade-related headlines are quieting down. And so it's sort of time perhaps to understand, I don't want to say new normal, I just don't feel, that's like jinxing it a little bit, but like what the new environment looks like for some of the industries that have been whipsawed and affected over recent weeks and months.

Tracy Alloway (0:48)

Yeah, 90 days for investors, executives and podcasters to kind of catch their breath and consider the new environment. That's how I would describe it. And then it will probably all change again.

Joe Weisenthal (0:59)

It'll all change. We're never going to run out of fresh material and fresh stories to talk about. You know, there's always this thing, people are always surprised that there is this phenomenon which seems to occur in markets in which Republican presidents tend to not be great environments for the oil industry. Like people think, oh yeah, here we're going to have this pro-oil president come in. But pro-oil, I don't know what that means, but if it means more pro-drilling, pro-liberalization of energy regulations, then often that means lower prices and less profits. And then, you know, you get an environment where you get a Democratic president who wants to constrict expansion, focus more on alternatives, and then profits go up. Anyway, the pattern seems to be repeating now, and oil prices have done pretty badly since the start of the year.

Tracy Alloway (1:48)

Yeah, so this is something we've been watching, we've been writing about it in the Odd Lots newsletter. There was that great report out from the Dallas Fed, their regular energy survey, and it had a bunch of quotes from anonymous oil officials that were really kind of extreme in various ways. And I think one of them kind of nailed the theme, which is that you can't really have $50 per barrel oil and US energy dominance. That's right. It's incompatible in various ways. So I think we should talk about that tension.

Joe Weisenthal (2:22)

We should absolutely talk about the tension. In addition to the supply, and we know that OPEC is pumping more, there are all the input costs going up, particularly from tariff affected companies in the US. What is it? Steel, tubular?

Tracy Alloway (2:37)

Tubular components, Christmas trees, those are the little collections of valves and spools.

Joe Weisenthal (2:43)

Yeah, so we're going to get into all that. This double whammy, so to speak, we have seen a bit of a rebound as we were talking about this on April 13th, 2025 at 10:07 a.m. Eastern time. The price of a generic barrel of West Texas Intermediate, $62.96.

I don't know how profitable it is at that level, but we have the perfect guess. Someone we spoke to a few years ago when the industry was under very different conditions, but someone who has a very sort of granular understanding of the industry. We're going to be speaking with Peter Tertzakian. He's currently the founder and president of Studio.energy. Previously, he was a managing director at Ark Financial, which did investing in the oil industry. So an expert in the space has written books about the energy industry, energy transition periods and so forth. So Peter, thank you so much for coming back on Odd Lots.

Peter Tertzakian (3:36)

Well, I'm delighted to be back. Thank you.

Joe Weisenthal (3:40)

$62.95 now. Can the industry make money at these levels? Who's making money at these levels?

Peter Tertzakian (3:46)

Well, the industry is composed of many, many players that have many different geographic land holdings, and therefore many different extraction methodologies and different grades of oil. So $62.96, if we think of it as an average price, is sort of okay. It's marginally profitable for a large part of the industry, but there's no question that higher cost producers start falling off the map. And what you also see is things like stripper wells, wells that are very low productivity start to get shut in at these levels. And then there's the boardroom discussion about, well, what is the longevity of these prices?

You know, the $62.96 is, and actually it was only about a week or two ago, it was in the high 50s. Yeah. You know, it's like, you sort of look at that in the boardroom and you just say, okay, is this going to last a quarter or is it going to last a year? And you probably say, you know what, I'm going to wait a quarter before I start making any major decisions on my budgeting.