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Shale producers Diamondback and Parsley need $30 oil to turn Fracking back on !

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Parsley said it would only take two weeks to get wells back to pre cutback volume.

This speaks to the shale industry resiliency .

The $30 bbl price tells us the producers (efficient ones) can cover their variable costs and then some at that price. 

While seeing more and more people out and about I'm not sure the demand is there yet.  The work down of the storage inventory could take a while. The last week's price action has been encouraging , however it may be getting a little bit ahead of itself this early on.  

Has this price increase been the result of increased confidence due to states starting to open their economy or has the producers cutbacks been that substantial to avoid U.S. storage capacity filling. Could be that a small to moderate demand increase along with sizeable cutbacks is enough to elevate pressure on storage capacity.  If storage is not an issue oil should be in the $30s at minimal. 

My "guess" is the price appreciation will slow in the coming weeks or even retreat a little until we can gage the real demand and storage capacity for Q2 and Q3. 

This crisis will weed out the weak shale players.  Consolidation is long overdue. Those overburdened with excessive debt will need to reorganize or go away.  The larger shale firms that consolidate the small will reduce fixed costs as a percentage of total costs to lift a bbl of oil. Just what's needed.  

The strong will prosper.

Post on Goldman "Cash-Cost"


Edited by BLA

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