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James Regan

Peak Shale Will Send Oil Prices Sky High

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Much of the cheap oil has been produced, and the oil industry is increasingly relying on costly reserves. While the world is awash in supply right now, the market may begin to tighten up in the next few years, forcing prices higher.

But the global economy will begin to sputter as a result of higher crude prices. “The current economic system cannot sustain oil prices above $100 a barrel, and engage in genuine growth in the real economy for very long,” warned the report, authored by Dr. Simon Michaux and published by the Geological Survey of Finland. “Alternatively, producers cannot sustain oil prices as low as $45 a barrel and still make a profit.”

That’s especially true of U.S. shale. Wall Street is taking an increasingly critical view of shale, an industry which has never been cash flow positive for any meaningful period of time. As investors, banks and other forms of finance distance themselves from unprofitable shale drilling, the rate of bankruptcies is on the rise. Clearly, at least a portion of the global oil industry needs much higher prices in order to sustain growth. The production gains of the past decade were possible via cheap credit and an overcapitalized industry in North Dakota and Texas.

U.S. shale could be nearing a peak, or, at least a plateau. There isn’t a consensus on this, by any means, but a growing number of analysts and even some within the industry are eyeing such a possibility. For example, John Hess, CEO of Hess Corp., recently said that production in the Bakken could peak within the next two years and the Permian will peak in the mid-2020s. But others have said that the Permian peak may arrive sooner. Steep decline rates mean that any slowdown in the pace of drilling will quickly impact production.

The financial stress sweeping across the shale industry may bring forward the peak in shale production. But the precise date is not all that important. The problem is that the plateauing of U.S. shale, and the resulting increasing in prices, could spell trouble for the global economy. Michaux, author of the Geological Survey of Finland, cited the 2008-2009 global financial crisis as an example. Saudi oil production stalled out in the years preceding the crisis, precipitating a massive price spike in 2008, which contributed to the financial market meltdown.

The report – which was recently analyzed in an excellent article by Vice – notes that about 70 percent of the world’s oil supply comes from fields discovered before 1970, and the bulk of that comes from 10 to 20 enormous fields. The pace of discoveries has slowed dramatically in the past decade. In fact, conventional oil production largely plateaued in 2005. Since then, U.S. shale and Canadian oil sands accounted for most of the new supply. But as the number of bankruptcies in the shale patch reveal, the new forms of oil are more costly to produce.                                                                                     

The report concedes that the oil market is currently oversupplied. But Michaux takes a dim view of peak oil demand, instead predicting that demand growth will once again begin to exceed supply growth, putting a lot of pressure on spare capacity, which will shrink to ever-smaller levels. “Oil demand is still growing by ~1mbd every year, and no central scenarios that have been recently assessed see oil demand peaking before 2040,” Michaux warns.

Roughly 81 percent of existing production is already in decline. Given that the average decline rate bounces around between 5 to 7 percent per year – which translates to lost production of about 3 to 4.5 million barrels per day (mb/d) each year – the world will need to come up with an extra 40 mb/d just to keep output flat, Michaux predicts.

In other words, the market will need the equivalent of four additional Saudi Arabia’s just to replace depleted fields by 2040. But, as previously mentioned, the major source of supply growth in the past decade – U.S. shale – is running on fumes, and needs higher prices in order to grow.

To be clear, this flies in the face of lot of conventional wisdom in the industry (newfound conventional wisdom, it should be noted). For instance, Suncor Energy just announced a C$2.8 billion write-down on its newest oil sands production facility, due to the expectation of low long-term oil prices. “When the price went down in 2014, I don’t think people realized that we literally were going to go (down) year over year over year,” Suncor CEO Mark Little said Thursday on a conference call. "We’re literally bouncing around, but trading sideways. When we look at the markets we think, 'hey we’re sitting in this same range going forward for foreseeable future.'”

Many industry analysts see oil prices remaining “lower for longer,” or even permanently lower. The prospect of peak demand plays into this, and the shift away from fossil fuels would relieve pressure on the global economy and prevent oil prices from spiking.

But Simon Michaux wrote in the Geological Survey of Finland that the energy transition may not be fast enough. As slowing supply growth runs into ongoing increases in demand, the result could be much higher prices in the years ahead, and a major risk to the global economy. “Money supply and debt have grown faster than the real economy. Debt saturation and paralysis is now a very real risk, requiring a global scale reset,” Michaux warned. That’s a nice way of saying that an oil price spike could cause another financial crisis.

Written by an OP Journalist NC but being sited on many other sections of the global media.

https://www-nasdaq-com.cdn.ampproject.org/c/s/www.nasdaq.com/articles/peak-shale-will-send-oil-prices-sky-high-2020-02-07?amp

We haven't seen the damage that Shale will do in the future in comparrison to what it already has done, shocking.

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Same song and dance I’ve read since fracking dropped oil prices and saved the world.🙃

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On 2/8/2020 at 9:52 AM, James Regan said:

For example, John Hess, CEO of Hess Corp., recently said that production in the Bakken could peak within the next two years and the Permian will peak in the mid-2020s.

I think John Hess is a stand-up guy. However, you have to ask why he'd make that statement. On previously condemned minerals in Dunn County North Dakota--we're talking Tier-3 property by former designation--Bruin recently drilled eight wells from a pad and they were all eight just absolute monsters. Hess is . . . . well gee . . . . drilling nearby. As is Marathon. On Tier-3 property! Go figure!

Now I'm curious. If what was considered worthless has now turned into the most prolific drilling site in the Bakken, what makes Mr. Hess so sure it's pretty much over? What about all that worthless crap over in Divide County? The shale is thin but it's also shallow--costs are low. And Burke, what about it? There's plenty of oil under Burke.

I will admit that I own some of that "worthless" property in Dunn County--Tier-3 by designation just a few years ago. About every other day I now get an offer to take that off my hands, because "there's an awful lot of volatility in oil, so take your profits now," and "this will probably never be produced but we're in the business," and "shale is quickly winding down, but here's our offer, and by the way, if you get a better offer, please let us know and we'll sharpen our pencils and try to meet their price," but "beware, there are a lot of sharpies out there who would like to steal your minerals and we pride ourselves in looking out for our people."

You may have an isopach map of the Bakken. If so, look at the density of wells. Those juicy yesteryear sites are not remotely close to where the major strikes are today. Today there's a hot little spot in Williams County--which barely made it on the isopach just three years ago. Back when Mountrail west of the Nissen Anticline was hot stuff, you could pick up all the property in western Dunn you wanted. Well, today, that's where the big Lars wells is. And these Bruin and Marathon wells--in Tier-3 property previously condemned to the dustbin.

Why? I know there are quite a few people on this site who think technology is a dirty word, so let's just say they're on a learning curve up there, mostly having to do with completion techniques and gas-lifting. As has been pointed out repeatedly by very respected gents with lots of years under their belts, you can torture the rock all you want and it's going to give up the same amount of product. But it also turns out that there's an awful lot of oil that was released by fracturing but adamantly refuses to come up on its own. That seems to be the dispositive multiplier. It's not so much the quantity but the percentage you can lift. In the old days of conventional wells, it was routine to lift 5-10% and move on, let what will trickle in do so over the next thirty years. Can you imagine how much oil there is out there, in old forgotten wells? An awful lot. 75% in many cases. 

The Permian has a lot more shale layers than the Bakken, and they're thicker--I just picked on the Bakken because that's what Mr. Hess focused on--it's his playpen. In the Permian, there is a vast array of drilling sites: into three shelves of Bone Spring; the thick Wolfcamp, the San Andrus. My gosh, it would take Cox's Army to drill out the Permian shale by 2025! Between the Bakken and the Permian, there is room for tens of thousands of new wells. Some of these will be such utter surprises that it will twist the play for a while--in both good and bad directions. These fields are still under evolution. Saying when they will peak is . . . pass the whiskey, will you?

I'm pretty sure Mr. Hess had himself a good laugh after he gave his speech. He is a consummate CEO of a company that just happens to be in the oil business. In fact, in that same speech, he said Hess will drill about 170 wells in the Bakken this year. If the Bakken is quickly peaking, and there is an ongoing glut with falling prices during a virus outbreak that threatens to wipe out a lot of demand, why not just hold those precious acres for a few years, go do something else--Hess has plenty of other sites--exploit them when oil is >$80? 

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(edited)

HESS now playing down shale. Create narrative to support price.  

ALSO HESS in joint venture with EXXON have found a mother lode of oil off Guyana.  The beauty is they conned the Guyana government into signing a sweet sweet deal.  Big deal for Exxon, MONSTER DEAL for HESS. 

Plenty of oil. 

Read the Annual reports of the public producers.  They report their average oil price to lift oil at the wellhead (no overhead) All the avg prices are in the $teens.

HESS EARNINGS REPORT in 2019 stated wells drilled in 2018 returned 15% on capital invested at $50 bbl oil.  .  HESS said wells in 2019 using new completion technology returned 50% on capital at $50 bbl oil

HESS like Pioneer CEO Sheffield were hurting themselves by boasting about shale oil.  They and others are now deliberately talking it down shale = higher prices . . They hope. 

 

 

Edited by BLA
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(edited)

"Peak Shale Will Send Oil Prices Sky High"

Another sensationalized headline to get clicks from a "Never Shaler" that has trashed shale forever trying to pump up oil prices.

Reckless journalism.  

First, we are not even close to peak shale.  Peak demand soon. Peak shale no.

Second, offshore and new development (Guyana, Suriname, all of West Africa, Sub Sahara, Brazil, Argentina, Norway etc.  will provide more supply than any increased demand. 

 

Edited by BLA
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Shale is running out of external capital.  These shale oil comes popped up about ten years ago lush with investors cash, lots of lies and lots of false promises which have proven to be commonly unsubstantiated.  Now their bonds are collapsing.

Shale gas is even in a worse position, thanks to shale oil which has destroyed the dry gas market.  The entire Appalachian is on its way to full fledged bankruptcy.  

Can you find me any shale companies that have delivered shareholder value?

When a company like Halliburton abandons half of their fracking equipment in the United States, you know there are real problems - the shale boom is NOT coming back.

Once the narrative shifts to the truthful reality, then we can have a bull market in oil.

A storied company like Exxon Mobil is now heavily investing in Permian shale which is why their stock price is dropping.  The majors don't get it.  Shale is quicksand.  Lots of false promises of greatness but it hasn't proven to be that great, unless you enjoyed the cheap prices that decimated investors have paid for.....

Stay away from the US shale business unless you want to lose all your money.

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14 hours ago, Chris Kanaan said:

Stay away from the US shale business unless you want to lose all your money.

OK what industry makes money in oil 

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18 hours ago, Chris Kanaan said:

 

Lots of false promises of greatness but it hasn't proven to be that great, unless you enjoyed the cheap prices that decimated investors have paid for.....

Stay away from the US shale business unless you want to lose all your money.

It was great until more supply than demand.    When greedy shale producers over leveraged their balance sheets, paid exhorbanant prices for drilling rights and made stupid financial decisions. 

Stay away from U.S. shale AND conventional oil producers UNTIL the consolidation takes place that should start second half this year.  

All types of consolidation, mergers, bankruptcies, reorganizations and acquisitions coming over next few years.  

The uptake in electric vehicles will become clearer during the same period.(Note: don't invest in traditional car mfg. The transition to EVs will be very costly.  The're starting to cut back dividends)

Only then will one be able to gauge the proper duration and valuation of oil and gas companies.  

I believe at lower valuation than today's stock prices.

The big service companies lost control over the drilling, fracking and pumping business years ago.  

Need the latest equipment to remain competitive. More HP, now e-frac, better drill rigs/bits.  They abandoned half their equipment because it's junk.  

Shale is slowing down until after consolidation takes place. Hopefully by 2021.

Edited by BLA
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24 minutes ago, zbest1966 said:

OK what industry makes money in oil 

Petro tal TAL.V is Peru location Texas headquarters.  I want to own but dont know all the CAD to US rules ... yet

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9 hours ago, zbest1966 said:

OK what industry makes money in oil 

Oilsands are doing good and it will do better soon after shale busts and Line 3 comes online.

Southeastern Saskatchewan shallow oily rich wells are profitable.

Montney is looking good once natural gas prices improve and condensate demand picks up.

Australian offshore looks good.

I prefer lower capex producers right now that can sustain the downturn.

Heavily leveraged players with lots of associated gas and NGL's are in existential trouble.

Even big gunners like Chevon and Exxon have not been able to escape the shale plague.

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8 hours ago, BLA said:

It was great until more supply than demand.    When greedy shale producers over leveraged their balance sheets, paid exhorbanant prices for drilling rights and made stupid financial decisions. 

Stay away from U.S. shale AND conventional oil producers UNTIL the consolidation takes place that should start second half this year.  

All types of consolidation, mergers, bankruptcies, reorganizations and acquisitions coming over next few years.  

.

 

Not sure how many players in American shale will be around in "a few years."

Already the list is getting smaller and smaller.

Many shale companies (WLL, OAS, EQT, CRC, SWN, CDEV, etc) are all flirting with becoming distressed very quickly in current commodity atmosphere.  Bonds collapsing, equity is mostly vanishing.  Not much investor activism because so few investors remain.

Even midstream yields are getting insane which is really a warning sign as midstream space senses a danger that there may be no demand for the product?  Crude quality matters? 

OIH has collapsed and moving equipment overseas.  Shale revolution you say?

Bigger guys like Pioneer and Diamondback, I wouldn't even feel safe with them.  They have just been more successful at manipulating investors and may have better acreages in Midland.

US energy sector carries 4% weight only because some US producers are not shale.

If it were shale, it would be like 1%.... worthless, false narratives, cash losing, ponzis...

This will charade of shale being the future of oil production and energy independence is a bogus charade; completely hogwash.

Edited by Chris Kanaan

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9 hours ago, Chris Kanaan said:

Oilsands are doing good and it will do better soon after shale busts and Line 3 comes online.

Southeastern Saskatchewan shallow oily rich wells are profitable.

Montney is looking good once natural gas prices improve and condensate demand picks up.

Australian offshore looks good.

I prefer lower capex producers right now that can sustain the downturn.

Heavily leveraged players with lots of associated gas and NGL's are in existential trouble.

Even big gunners like Chevon and Exxon have not been able to escape the shale plague.

A lot of Exxon and Chevron loses from refining and petrochemical. They have dominated world distribution for years.  Now countries developing their own refining and petrochemical industries.  Too much oil, too much natural gas, too much refining capacity.  Then here comes EVs.

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9 hours ago, Chris Kanaan said:

 

Not sure how many players in American shale will be around in "a few years."

Already the list is getting smaller and smaller.

Many shale companies (WLL, OAS, EQT, CRC, SWN, CDEV, etc) are all flirting with becoming distressed very quickly in current commodity atmosphere.  Bonds collapsing, equity is mostly vanishing.  Not much investor activism because so few investors remain.

Even midstream yields are getting insane which is really a warning sign as midstream space senses a danger that there may be no demand for the product?  Crude quality matters? 

OIH has collapsed and moving equipment overseas.  Shale revolution you say?

Bigger guys like Pioneer and Diamondback, I wouldn't even feel safe with them.  They have just been more successful at manipulating investors and may have better acreages in Midland.

US energy sector carries 4% weight only because some US producers are not shale.

If it were shale, it would be like 1%.... worthless, false narratives, cash losing, ponzis...

This will charade of shale being the future of oil production and energy independence is a bogus charade; completely hogwash.

No

World needs oil.

Need to align operations with balance sheet and true price that will ultimately provide a true supply and demand model. 

Supply and demand still too close.  As soon as supply increases to large enough margin over demand true completion begins.

Then the investment decision is not how fast supply increases, but how fast will demand decrease. 

Like I said don't invest in any oil company.  

Edited by BLA

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On 2/10/2020 at 2:43 AM, Boat said:

Same song and dance I’ve read since fracking dropped oil prices and saved the world.🙃

‘Fracking dropped oil prices and saved the world.’

Really? Your knowledge of oil exploration and production is truly impressive.

That was sarcasm if you couldn’t tell. I honestly think that you are mentally challenged, on this topic anyway.

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On 2/8/2020 at 11:52 AM, James Regan said:

Many industry analysts see oil prices remaining “lower for longer,” or even permanently lower. The prospect of peak demand plays into this, and the shift away from fossil fuels would relieve pressure on the global economy and prevent oil prices from spiking.

But Simon Michaux wrote in the Geological Survey of Finland that the energy transition may not be fast enough. As slowing supply growth runs into ongoing increases in demand, the result could be much higher prices in the years ahead, and a major risk to the global economy. “Money supply and debt have grown faster than the real economy. Debt saturation and paralysis is now a very real risk, requiring a global scale reset,” Michaux warned. That’s a nice way of saying that an oil price spike could cause another financial crisis.

I have posted my projections for oil demand plateauing and coming off over the decade. It is just a matter of how much low cost NG displaces oil and caps its price by competition for heavy fuel users in shipping and petrochem. There will not be a general increase in oil demand as the EIA projects, as 85% is for petrochem, which will be displaced by NG/LNG and the balance for shipping, which is also going to be displaced. 

While I see population increasing into 2040 globally, the increase is in the pre-retirement and retired group who generally consume  1/4-1/3 less during retirement savings and 2/3 less when retired, and often even 1/4 of their peak consumption. 

Which is why overall energy demand will peak shortly after the first smaller global cohort reaches adulthood in 2040 (peak babies was 2018 globally, and 40-60 years ago in OECD+China). By which time the global boomer generation will have died off and the economics of declining population will have long since kicked in with reduced infrastructure demand, housing demand and auto demand. Most pronounced in China.

As to the funding of shale, it is obviously a big disappointment to investors that oil and gas prices cratered as a result of their funding of wild drilling. But those who have not overpaid for leases and arranged good operating terms (not use it or lose it) have cash flows to put to work and newly optimized drilling and fracking practices that reduce costs. Then there is the mystery of how real the refracking output can be as claimed by some major operators. Early wells with 4-5% recoveries would obviously be good candidates for reworking, so there is a likely echo wave of the shale boom at similar price levels to what we saw in the 2017-18 runup. Lets call it "re-shale". I have no idea how large it would be.

The breakeven cost for the best performers is claimed as $40/bbl in shale, $30 on a pure cash basis (without interest costs). Post the bankruptcy wave, that will matter far more for forward production growth as the assets would not be burdened by old debt but by refi packages of mostly equity and put under management or ownership of the majors and best operators. Their fear for the shale oil supply is overblown. High oil prices will occur as the debt funding of forward drilling has already dried up, but higher prices would definitely bring higher cash flows and more drilling to the survivors who take over the assets. We have already gone through a cycle where shale was crushed and hundreds of companies went bust. Followed by a rising price and the resumed production growth and repeated price crash. 

So yes, shale oil fiasco, and then a recovery. This is not the monopoly market of history where between Standard Oil, the Texas RR commission and OPEC we have had monopoly controlled oil supplies and stable but rising prices till shale came in and busted it all up. Now we are in a much more volatile price environment where prices must swing between capital formation pricing (where the price covers a large profit and capital costs as well as cash costs) and glut pricing (where it doesn't even cover cash costs). 

 

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9 hours ago, Douglas Buckland said:

‘Fracking dropped oil prices and saved the world.’

Really? Your knowledge of oil exploration and production is truly impressive.

That was sarcasm if you couldn’t tell. I honestly think that you are mentally challenged, on this topic anyway.

This comes from a guy that favors Canadian tar sands over LTO that is needed to get that sludge through the pipeline. You love feeding those foreign refineries for product shipped to foreign countries. Your a mess and certainly no patriot. You say you need a job. Shouldn’t you be over in Venezuela feeding those thousands of Total gas stations? You and Trump MAGA. 

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No, I do not ‘need’ a job, but I would like to go back to work. A subtle, but distinct, difference.

Secondly, where did you get the idea that I favor tar sands over LTO? I have never indicated that I do.

Finally, I am fairly sure that the Canadian tar sand ‘sludge’ was getting down the ‘pipeline’ just fine prior to the LTO fiasco.

So I am a mess and not a patriot? I’ll just consider the source on that.

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(edited)

12 hours ago, BLA said:

A lot of Exxon and Chevron loses from refining and petrochemical. They have dominated world distribution for years.  Now countries developing their own refining and petrochemical industries.  Too much oil, too much natural gas, too much refining capacity.  Then here comes EVs.

Chevron was pulverized on their Appalachian basin assets, how is that petrochemical or refining?

As for refining, the long standing argument has been that shale oil is unfavourable for crude slate - which seems to have some truthful merit when we see record high gasoline inventories and poor refining cracks, not to mention:  explosions.  I expect Exxon's entry into Permian shale to be a disaster, already their stock is falling to decade lows and it will keep dropping like the rest of the shale stocks.

 

Edited by Chris Kanaan
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7 hours ago, Chris Kanaan said:

Chevron was pulverized on their Appalachian basin assets, how is that petrochemical or refining?

As for refining, the long standing argument has been that shale oil is unfavourable for crude slate - which seems to have some truthful merit when we see record high gasoline inventories and poor refining cracks, not to mention:  explosions.  I expect Exxon's entry into Permian shale to be a disaster, already their stock is falling to decade lows and it will keep dropping like the rest of the shale stocks.

 

No

Like I said, " A lot of Exxon . . . . refining "

Too many refineries and petrochemical plants built around the world .  Going to take time to accommodate that capacity. 

Everyone getting killed in natural gas.  Chevron took the one time hit for Appalachian gas (not oil).  Waiting for EXXON.  They should have huge write-offs for Imperial oil Tar Sands and the XTO $41 Billon natural gas play.  Only wrote off about $3 Billion of Tar Sands.  

Shareholders can thank Rex Tillerson for those moves.  The beauty is when Rex took the Sec of State job under Trump he had to sell all his Exxon stock.  Lucky bastard. 

Example: Mexico President just announce multi Billion new gasoline refinery.  Waste of money.  Ten times cheaper to have U.S. deliver gasoline.  But it's a pride thing.  I guess. 

Edited by BLA

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On 2/8/2020 at 4:52 PM, James Regan said:

Much of the cheap oil has been produced, and the oil industry is increasingly relying on costly reserves. While the world is awash in supply right now, the market may begin to tighten up in the next few years, forcing prices higher.

 

Surely its when  peak shale passes and production sufficiently declines assuming other sources don't come on stream. 

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16 minutes ago, NickW said:

Surely its when  peak shale passes and production sufficiently declines assuming other sources don't come on stream. 

When the shale oil fiasco settles down, I am guessing that it will reach an equilibrium production level which can be maintained without relentless drilling and hydraulic fracturing.

If this occurs, a large volume of oil will be taken off of the market. Combined with OPES+ cuts the perceived over supply should dry up and the oil price should find a realistic price which will reduce volatility in the market.

Once there is some faith in a realistic, steady price, ‘real’ exploration, onshore and off, will begin again.

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3 minutes ago, Douglas Buckland said:

When the shale oil fiasco settles down, I am guessing that it will reach an equilibrium production level which can be maintained without relentless drilling and hydraulic fracturing.

If this occurs, a large volume of oil will be taken off of the market. Combined with OPES+ cuts the perceived over supply should dry up and the oil price should find a realistic price which will reduce volatility in the market.

Once there is some faith in a realistic, steady price, ‘real’ exploration, onshore and off, will begin again.

I recall someone at Aramco saying the every ones happy price compromise is about $80 a barrel (2011) 

  • Too cheap to fast track alternatives
  • Too expensive to unnecessarily waste
  • About right in terms of driving exploration
  • Just enough to keep the Arab Welfare Gulf States Stable
  • Too low for the Arab Welfare Gulf  States to start throwing their weight about. 
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On 2/13/2020 at 9:25 AM, Douglas Buckland said:

When the shale oil fiasco settles down, I am guessing that it will reach an equilibrium production level which can be maintained without relentless drilling and hydraulic fracturing.

If this occurs, a large volume of oil will be taken off of the market. Combined with OPES+ cuts the perceived over supply should dry up and the oil price should find a realistic price which will reduce volatility in the market.

Once there is some faith in a realistic, steady price, ‘real’ exploration, onshore and off, will begin again.

Doug do you have a guess at what that price level might be for WTI?  Maybe $65-$75/bo?  Obviously nobody knows, but guesses by knowledgeable oil industry people (or retired professionals) would be better than my guesses.

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That is a tough one. There are other financial oriented guys and gals on this forum who could probably answer your question and give supporting evidence to back up what they say.

I, on the other hand, can only give you my gut feeling.

WTI was up to about the $60/bbl mark not long before the corona virus came into play. Internationally this price level did not seem to stimulate any new exploration or drilling of prospects already on the books (due to previous 3D and 2D seismic work), onshore or offshore.

I think a jump to $70/bbl MAY get some operators interested, but that is simply a guess.

In my mind, the whole issue of surplus oil needs to be investigated and acted on. Without having accurate data, which we do not, constantly spouting the mantra ‘surplus oil’ is guaranteed to keep the price where it is.

Two issues here. If we really are not in a serious over supply situation and demand goes up for any reason (the corona virus issue is resolved and demand jumps), we could ‘wake up tomorrow’ with no oil in storage and no new fields ready to deliver to market. The price would spike - which is not good for anyone.

On thing has bothered me these past 5 years. If the international market is flooded with oil, why do we (collectively) keep producing and putting even more oil into an over supplied market and guaranteeing a low price? Wouldn’t it make more sense to sell what you have in storage, at the present price, dry up the surplus, get the price back up to a reasonable level and get back to work?

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According to Art Berman research full cost of producing oil at largest Permian Basin is about 58-60 $. You have to add discount of local grades to WTI and also light sweet discount to Brent. I think something about 65-70  $ per WTI and about  5 $ more per Brent would be suitable.

Above $ 80 begins the destruction of potential demand for oil and a greater propensity to replace oil with renewable energy, so I think Brent oil around $ 75-80 would suit for both private producers and producer countries and would not cause problems for importing countries because on the other hand the price above $ 100 holds back global growth.

You should also not forget about the dollar index, which is currently very high and many people predict its weakening in the current decade, which should have a positive effect on the prices of commodities  related to the inverse correlation with the dollar exchange rate to currency of emerging markets.

 

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