Having just said that, some thoughts on the Bakken this morning. Just in passing.
WTI: For folks in the Bakken: be very afraid.
For folks in the Permian: be very afraid.
Saudi Arabia: be very, very afraid.
One hundred million bopd -- global production -- and with talk of OPEC/Russia increasing production by one million bopd -- WTI plummets from $72 to $66. That's all it takes. Talk. The Bakken and the Permian are not going to go away with $65 oil. But Saudi Arabia cannot survive $65-oil. Again, it looks like Saudi Arabia is falling into the trap of group-think. They thought the discussion had changed from "supply" to "demand." It certainly appears Saudi Arabia is getting ready to make another trillion-dollar mistake.
What does Bloomberg have to say about this? "OPEC and Russia best not poke the shale oil bear."
Here’s one under-reported factor that may explain Russian and Saudi Arabian willingness to turn their backs on almost 18 months of OPEC oil supply cuts – the spread between Brent crude and West Texas Intermediate has reached its widest level in three years.
The simple reason for this is that the shale oil boom has left crude sloshing around the U.S., resulting in a local oversupply. While Brent prices have risen some 14 percent over the past three months, WTI is up just 7.5 percent and Midland crude – the version of WTI priced in the booming Permian basin rather than the benchmark delivery point in Cushing, Oklahoma -- is down 4.8 percent.
The last time we saw these sorts of spreads, there were sound legal reasons for it. The U.S. had forbidden almost all exports of crude oil for four decades until the end of 2015, so for many years its soaring shale oil production was trapped by the ban and the capacity limits of U.S. refineries that were able to convert it into exportable products.
The growing spreads now suggest that supply is pushing up against a different sort of bottleneck: A shortage of pipeline capacity between Midland and Cushing, and then a further shortage of pipeline and port capacity to get U.S. crude onto a hungry global market.
And the comments: if there is so much oil sloshing around, then tell me why gasoline is so high-priced? Those comments are tedious. Anyone that follows the oil industry knows there is a huge disconnect between price of oil and the price of gasoline. That is also true for potatoes and potato chips. And wheat and bread. I think one large potato can be bought for about twenty cents at the local farmer's market; from that one potato, half a bag of potato chips for $2.29. And regardless of what the potato costs, the bag of potato chips costs the same for weeks on end.
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Cross-Country Driving
My round-trip was uneventful from Dallas, TX, to Williston, ND. I can't say the same for my Portland, Oregon, brother-in-law and their older son, traveling from Portland, to Williston.
Just after crossing the Idaho-Montana state border, they were startled by a small, private plane, that just minutes earlier had landed on the highway in front of them. The pilot walked away; traffic was tied up for a few minutes, but Dave and Cameron sailed on.
"Just after that," they were again startled by a semi-truck / 18-wheeler that had crashed into a guard rail. They passed without difficulty.
Not too much farther down the road, they were almost pushed off the road by another 18-wheeler -- that was the most dangerous situation so far. In fact, it sounds like they were quite fortunate to have survived that near disaster.
So, knowing that things come in three and having cheated the jaws of death, Cameron said, "well, we got through that. Should be okay now."
Dave: "We're not home yet."
Shortly after that they got caught by a truck that was passing inappropriately in a no passing one. Three-wide is not something you want to see when one is in a car, no matter how big, and the other two vehicles are 18-wheelers. Yup, Dave threaded the need. One truck, one car going in one direction and one truck going in the opposite direction on a two-lane road.
All in Montana. Four near-misses, or more accurately, four near-hits. They weren't "near-misses." Dave adroitly avoided all potential mishaps.
Dave told the story with a bit more enthusiasm.
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