Breakeven Prices -- What They Mean For Shale -- Added To Sidebar At The Right -- May 25, 2019

At the sidebar at the right, I have added this link to "Commentaries": breakeven prices -- what they mean for shale.

**********************************

OPEC vs Shale

Battle For Oil Price Supremacy

Link to Wall Street Journal.

Oil prices are in a tug of war between the huge increase in U.S. shale production and the cartel’s attempts to slash its own output.

“There’s a certain element of confidence that this rally has further to go,” said Harry Tchilinguirian, global head of commodity markets strategy for BNP Paribas -- published April 18, 2019.

So, the analyst suggested that the run-up in oil prices leading up to April 18, 2019, suggested that the run-up had legs.

Recent WTI futures:

• April, 2019: $63.91 -- the recent high
• May 20, 2019: $63.10
• May 21, 2019: $62.99
• May 22, 2019: $61.42
• May 23, 2019: $57.91
• May 24, 2019: $58.63

From mid-April to late-May, the price of crude oil fell pretty quickly. So much for "confidence that this rally has further to go." Unless, of course, anything above $50 is considered a rally. I don't know. But US shale will survive at $40 and thrive at $60. Can't say the same for OPEC.

From the linked WSJ article, two graphics:

I think the big question to be answered by historians: what happened in 2016 - 2017 that propelled US crude oil production? And then again, in late 2018?

I don't agree with the premise of the article or much of what the writers opine, but I will post some data points from the article of interest:

• U.S. oil shipments should surge in the second half of the year (I would love to see the writers' definition of surge; it seems US oil exports are already surging)
• Shale taps can be turned on and off faster than other producers, which has made it more difficult for OPEC to influence the oil market
• “It’s much more short cycle and responsive to price than the vast majority of global production, and it now represents more than 10% of global supply,” according to one analyst
• The EIA expects the U.S. to become a net exporter of energy by 2020, cementing the phenomenal transformation shale has created. The U.S. was briefly, for a week in November, a net exporter of crude and refined fuels for the first time in decades.

Global inventories:

• running about 3.0 billion bbls
• historical, and more than adequate: about 2.75 bbls
• at 3.0 billion bbls "today," not as high as the peak of 3.1 billion bbls back in late 2016 (all-time record?)
• forecast: by end of this year (2019): 2.915 billion bbls (I love that false precision: 2,915,000,000 bbls -- which suggests analysts can get estimate within one million [or more likely] five million bbls [0.17%] [North Dakota produces more than 5 million bbls each week] [global production is about 100 million bbls/day]

Price of oil required by selected countries to balance their budget:

• Iran: $90/bbl
• Saudi Arabia: $73 (considering that just a few years ago we were told that SA needed $100-oil to balance their budget, this number seems somewhat questionable) (prices are currently below $73)
• UAE: $65
• Iraq: $60

For the US, according to Wood Mackenzie:

• US oil to remain profitable: $53/bbl
• to sustain growth in excess of 0.5 million bopd: $60

And then remember Art Berman's "It's not a revolution, it's a retirement party."

I guess folks came out of retirement. Now they're talking about a second revolution in US shale:

“The second wave of the U.S. shale revolution is coming,” said Fatih Birol, executive director of the IEA, at the launch of its Oil 2019 report in March. He added that the U.S. will account for 70% of the total increase in global production capacity over the next five years.

Earlier I said I do not agree with the thesis of the article. A reader who commented at the linked WSJ article said it very succinctly and much better than I could have said it:

So if I read the article correctly, OPEC is winning if prices remain high, and this somehow implies that US producers are losing?  I don't know about the authors, but in my business if my competitor is cutting back production and allowing me to sell my product at a higher price, I count that as a win.

Yes, as good as the WSJ is supposed to be, sometimes I wonder. 

Again, I cannot stress enough the research article linked at this post.