Thursday, March 9, 2017

Oil Ticks see bad news all around.

Following last November's Vienna deal to cut production - which judging by record inventories one can allege never happened - the resulting rise in oil prices has sparked a rush of new output by shale producers, who this week outlined ambitious production growth plans across the United States. That prompted the Saudi to lash out: speaking at an industry conference in Houston, Saudi Arabia's Energy Minister Khalid al-Falih said that there would be no "free rides" for U.S. shale producers benefiting from the upturn.
According to Reuters, Falih's senior advisors even went a step further at the meeting on Tuesday evening with executives from Anadarko, ConocoPhillips, Occidental Petroleum, Pioneer Natural Resources, Newfield Exploration and EOG Resources.
"One of the advisors said that OPEC would not take the hit for the rise in U.S. shale production," a U.S. executive who was at the meeting told Reuters. "He said we and other shale producers should not automatically assume OPEC will extend the cuts."
The irony, of course, is that shale isn't "assuming" anything - it is merely producing as it has recently hedged itself for months to come and more importantly, it is profitable to produce at current prices: it is Saudi Arabia who, in a desperate attempt to boost interest and demand for its upcoming Saudi Aramco IPO, had no choice but to concede that its November 2014 decision to temporarily break the cartel was a mistake, and it alone was instrumental in getting last year's production cut deal together. It's even more ironic that should OPEC's production cut deal not be extended into the second half, oil prices will tumble as the Vienna "deal" is promptly forgotten, and the Saudi financial crisis which several months ago sent Saudi financial stocks crashing and bets on Riyal devaluation to all time highs, will quickly come back, backfiring on Riyadh far more than on US shale.  
Check out this chart:

That's going to be hard for the Ticks to resist, and there's no telling how much further down the frackers can push production costs.  

It's also bad news for the Russians, who get most of their money selling oil.  Once again, good old American ingenuity bids fair to break the backs of the oil tyrants.


  1. Yes on all counts.

    And the only way I can see the US getting out from under $21 trillion in debt (and rising) is to drill, pump and export oil - while becoming totally self-sufficient. We can rid ourselves of Middle Eastern dependence but we must build refineries.

  2. Sigh. Maybe when the rest of the world gets gas for $0.10/gal, the price at the pump in California will come down below $2, but I'm not holding my breath.

    Right now it's pushing $3/gal, and my old Buick don't run on unicorn farts!

    1. My big Dodge is pretty good on milage considering it's size, but still, gas is pricy in the Golden State.