Has OPEC Been Successful In Closing Down The US Shale Oil Business?


In the fall of 2014, Saudi Arabia began increasing the amount of crude oil they put up for sale. The objective is often thought to be an attempt to drive US oil fracking out of business. The price was expected to drop below the point where it was profitable to put in new wells and perhaps even close off many of those already in production. The oil rig count in October of last year was 1608 and it now stands at 747 Telegraph has posted : “Oil slump may deepen as US shale fights Opec to a standstill” gives a current status in this battle. And it seems to be going pretty well for the US and not so good for Saudi Arabia and the other OPEC members. From the Telegraph posting:

“There was a strong expectation that the US system would crash. It hasn’t,” said Atul Arya, from IHS. “The freight train of North American tight oil has just kept on coming. This is a classic price discovery exercise,” said Rex Tillerson, head of Exxon Mobil, the big brother of the Western oil industry. Mr. Tillerson said shale producers are more agile than critics expected, which means that the price war will go on. “This is going to last for a while,” he said, warning that any rallies are likely to prove false dawns.

The US “rig count” – suddenly the most-watched indicator in global energy – has fallen from 1,608 in October to 747 last week. Yet output has to continued to rise, stabilizing only over the past five weeks.”

usrigcountandcrudeproduction by bloomberg etc

Others are noting that innovation is cutting costs of new wells:

“We’ve really only begun to scratch the surface. Shale can keep growing by 500,000 to 700,000 b/d easily,” said Harold Hamm, founder of Continental Resources. His company has cut costs by 20pc to 25pc over the past four months.

US shale will “roll over” to some degree as producers exhaust their one-year hedges and face the full shock of lower prices. But it is hazardous to bet too heavily on this assumption.

IHS said an astonishing thing is happening as frackers keep discovering cleverer ways to extract oil, and switch tactically to better wells. Costs may plummet by 45pc this year, and by 60pc to 70pc before the end of 2016. “Break-even prices are going down across the board,” said the group’s Raoul LeBlanc.

Shale bosses have been lining up at this year’s “Energy Davos” to proclaim the fracking Gospel. “We have just drilled an 18,000 ft well in 16 days in the Permian Basis. Last year it took 30 days,” said Scott Sheffield, head of Pioneer Natural Resources.”

We’ve cut spud-to-spud time to 19 days,” said Hess Corporation’s John Hess, referring to the turnaround time between drilling. This is half the level in 2012. “We’ve driven down drilling costs by 50pc, and we can see another 30pc ahead,” he said.”

Large scale frackng has precipitated a number of geopolitical issues such as the stability of Middle East nations and on some nations that rely on crude oil sales to balance their budgets.  My next posting will look at some of these problems.

One thing though noted in the Independent posting is that:

“The market is primed for a sudden spike in prices if anything goes wrong. It is more than ever at the mercy of geopolitical events. One thing is for sure. If and when prices rebound, US shale is ready to sweep in with lightning speed to snatch yet more market share. Opec has met its match.”

Thanks to the US oil industry ingenuity, OPEC seems to be losing the fight. cbdakota

 

 

 

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