What's got oil so spooked? It's the economy. And excess production from U.S. Shale Oil.

The viewpoint in this opinion article glosses over a glaring, crucial point... overproduction by U.S. Shale Oil industry.  Although that should eventually start to self-correct next year as WTI prices react to excess production of U.S. Shale Oil, new drilling reduces, and existing production eventually drops due to the crazy decline rates of Shale Oil wells.

View: What's got oil so spooked? It's the economy

It wasn’t meant to be like this.

Not only are oil prices down nearly 40 per cent since early October, they’re below where they were when the Opec+ group of producers began their first round of output cuts in January 2017.

There are two main factors behind this pessimism. The first stems from an undue skepticism about the group's willingness to trim output. The second follows from a negative view about the global outlook that is subject to change – and if it does, a sharp rebound is in store.

The recent Russian-brokered deal to cut around 1.2 million barrels a day from global supply in January should have put a floor under prices. Their drop suggests traders don't believe the cuts will be implemented. ...

 

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And that overproduction by shale drillers will also come to a screeching halt as investors look for better returns for their investment. Right now the Permian has some 3800 DUC's as completion crews are backlogged for the foreseeable future.

We keep saying we want oil dominance over OPEC, but with that title comes the responsibility to control our own production, reigning it in when necessary.

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13 minutes ago, Justin Hicks said:

And that overproduction by shale drillers will also come to a screeching halt as investors look for better returns for their investment. Right now the Permian has some 3800 DUC's as completion crews are backlogged for the foreseeable future.

We keep saying we want oil dominance over OPEC, but with that title comes the responsibility to control our own production, reigning it in when necessary.

Here's my lead-in intro when I shared this thread on LinkedIn:

=============================

Markets seem to dislike uncertainty and overproduction.

Hey U.S. Shale Oil, what the heck are you doing?  Maybe time to slow down a bit, running frantically on the neverending hamster wheel of shale oil debt.  Running faster on the debt hamster wheel just drives WTI prices down further, and sinks you deeper into even more debt.

Instead of drilling yourselves into oblivion and further debt on another production and price roller coaster, perhaps this time you can try throttling back production **before** you crash everything?

Have you learned nothing from the last crash?  Apparently not.

 

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And the ever dour SRSrocco weighs in, although with some levity added in:

The U.S. Shale Oil Industry Bloodbath Spreads As Oil Price Meltdown Continues

Now, It doesn’t take a rocket scientist to figure out that investors in the Shale Industry must be dumb as a box of rocks.  Please understand, I don’t mean to be disrespectful, but enough is enough.  According to my analysis, the majority of the shale oil industry continues to spend more money than they make.  So, why would anyone invest in a company that continues to lose money?  I gather if rocks could talk, they would probably be offended that I compared them with shale energy investors.

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Reuters just posted this article:

Oil eases on oversupply concerns ahead of holiday

Oil prices dipped on Monday ahead of the Christmas holiday break, adding to last week’s steep losses on concerns about a global oversupply.

... Adding to concerns about oversupply, the number of active U.S. rigs for drilling oil rose by 10 in the week ended Dec. 21 to 883, according to a report by General Electric Co’s (GE.N) Baker Hughes energy services firm.

The United States has emerged as the world’s biggest crude producer, pumping 11.6 million bpd of crude, more than both Saudi Arabia and Russia.

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(edited)

2 hours ago, Tom Kirkman said:

And the ever dour SRSrocco weighs in, although with some levity added in:

The U.S. Shale Oil Industry Bloodbath Spreads As Oil Price Meltdown Continues

Now, It doesn’t take a rocket scientist to figure out that investors in the Shale Industry must be dumb as a box of rocks.  Please understand, I don’t mean to be disrespectful, but enough is enough.  According to my analysis, the majority of the shale oil industry continues to spend more money than they make.  So, why would anyone invest in a company that continues to lose money?  I gather if rocks could talk, they would probably be offended that I compared them with shale energy investors.

Have you ever heard of a company named Tesla? Hemorages money, yet is the most valuable car company. Was on the brink of shutdown with their invincible CEO sleeping on the floor, yet is rattling off about buying GM plants. 

 

Wall street is going to continue to wall street. Regardless of sector. 

Secondly, I think most of us understand that the private sector does not operate like government oil nations. Those payments need to be met. They cannot wait for a production pullback to raise prices, because the guy next door with a healthier balance sheet will continue to produce. And cashflow must come, no matter the consequence. They cannot go into default. 

Oil producing companies are finally starting to face the music that us in the retail end have had to live with for decades. It is not always that easy for me to say I need X retail price with X margin and X profits to survive, and control that. In a perfect world, of course. But big oil has been able to sing that song and dance forever. They have ran their finances in a way of untraditional business. Always expecting things to work out because they have to, just like the banks and vehicle makers during the financial meltdown.

And I think OPEC is in for a rude awakening the way they try to balance the market by restraint. That is extremely short sighted, because it gives your enemy a stronger balance sheet and more market share along the way. The oil market has become very similar to how retail gasoline works the last 2-3 years. And I'm not sure if MBS fully understands how things work. 

Welcome to the real world boys. 

Edited by J.mo
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15 hours ago, J.mo said:

Have you ever heard of a company named Tesla? Hemorages money, yet is the most valuable car company. Was on the brink of shutdown with their invincible CEO sleeping on the floor, yet is rattling off about buying GM plants. 

 

Wall street is going to continue to wall street. Regardless of sector. 

Secondly, I think most of us understand that the private sector does not operate like government oil nations. Those payments need to be met. They cannot wait for a production pullback to raise prices, because the guy next door with a healthier balance sheet will continue to produce. And cashflow must come, no matter the consequence. They cannot go into default. 

Oil producing companies are finally starting to face the music that us in the retail end have had to live with for decades. It is not always that easy for me to say I need X retail price with X margin and X profits to survive, and control that. In a perfect world, of course. But big oil has been able to sing that song and dance forever. They have ran their finances in a way of untraditional business. Always expecting things to work out because they have to, just like the banks and vehicle makers during the financial meltdown.

And I think OPEC is in for a rude awakening the way they try to balance the market by restraint. That is extremely short sighted, because it gives your enemy a stronger balance sheet and more market share along the way. The oil market has become very similar to how retail gasoline works the last 2-3 years. And I'm not sure if MBS fully understands how things work. 

Welcome to the real world boys. 

I was beginning to think that all posts here, were related to the value of the member's oils shares ...

I am a newbie but have been watching the posts for a while now.

For the first time, I see a post that I can actually agree with.

I am not sure why oil should receive special treatment. A product has a market value and it is irrelevant what your production and development costs are. If you wish to sell a product, you need to make sure that your manufacturing and distribution costs are efficiently managed, so that you can make a profit. You cannot usually decide that if it cost you $1, you want to sell it for $100, because you need the income to fuel your jet...

With oil, the managed prices have led to gross inefficiencies.

OPEC's control of the oil price has led to spiraling costs of all products worldwide in the last 5 decades and the economy of the world has suffered as a result.

The only way to remove the stranglehold is: oversupply.

Sure, the price of oil will drop as a result, but those who wish to remain in business WILL find ways to drop the costs. (They may need to sell a few of their business jets and other toys). Even shale oil producers will find a way to drop their production costs.

 

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