Yergin Ahead Of The Conference -- February 25, 2016

Over the weekend I rambled on about the Bakken and in passing mentioned an article sent to me by a reader about a recent speech Daniel Yergin had made. I had not yet had a chance to read it but said I would get back to it. (Unfortunately it did not say anything we did not already know; overall, somewhat disappointing, but the quick 30-second historical soundbite was nice.)

FuelFix is reporting:

Prominent energy expert Daniel Yergin believes the energy industry’s day of reckoning is here, amid the sudden and unrelenting rush of crude that has drowned oil markets for a year and a half.

This has happened before. In the 1930s, Texas suddenly overflowed with oil. Twenty years after that, it happened in Russia and the Middle Eastern countries. Then, in the 1980s, a tidal wave of oil from the United Kingdom’s North Sea, Alaska’s North Slope and Mexico presaged a ruinous oil bust. Now, the rapid-drilling shale oil producers in Texas and North Dakota that brought on the bulk of the world’s supply growth in recent years are dealing with the self-inflicted wounds of overproduction and high levels of debt.

A new reality which requires a "re-adjustment:

Such a cut is still unlikely, Yergin said, because of how shale oil has changed the industry. Unlike virtually every other way to extract crude from the earth, shale drilling doesn’t take longer than a few months. It has an average cycle time of 80 days, according to Goldman Sachs, meaning local oil companies can put oil on the market almost as fast as Saudi Arabian oil can arrive in the United States by ship.

That means if OPEC cut production, it couldn’t support prices for long. Higher-cost shale drillers would have an incentive to restart their rigs in West Texas and soak up any market share left behind. In November 2014, OPEC decided not to curb its production.
“OPEC said if there’s going to be some effort to stabilize the market, it’s not just going to be us,” Yergin said. “It was an adjustment to a new reality.”

Yergin doesn't have much to add to what has already been written here, there, and everywhere.
This is his conclusion:

“If we have decent global growth, then it does seem to you’ll see the rebalancing of the market will happen in the second half of 2016 or 2017 and under those circumstances you could see prices in the $40 to $50 range later in the year,” Yergin said.

My thoughts: at $50-oil, the US shale industry survives; Saudi Arabia struggles; and Venezuela implodes. Even at $75-oil Saudi Arabia won't fare well. It budgets for $100-oil and that was before things turned nasty for them in the Mideast.