US Shale Boom -- A Seismic Event -- CNBC -- May 26, 2019

Updates

May 28, 2019: see first comment --

1. You are right to think OPEC/SA increase volatility. Look at 1950-1970 for instance. Before any effective market power was exerted.

2. Discussion of SA/OPEC smoothing volatility is a charade. INstead they want to raise prices above natural competitive balance, by constricting supply. This moves price into naturally unstable area. The reason why they say this is because they don't want to admit what they really want to do--to raise price so they get more money. Any econ book will show this is what monopolies want/try to do. And SA is a dominant player--a partial monopolist.

3. Morris Adelman, classical microeconomist and OPEC historian explained this well.

4. Even if prices were more stable wit OPEC than without it, and they're not, consumers are better off with volatile prices at lower averages than higher prices that are stable. Airfare prices is simplest example. But common sense applies as well. Of course the opposite applies for producers, who benefit by having a cartel raise prices.  

Google "Morris Adelman." 

Original Post

 This was posted by CNBC back in March, 2019.

• The US is now the world’s largest oil producer, surpassing Saudi Arabia and Russia, and that has made the crude market more volatile. [What a doofus; see below.]
• The policies of President Donald Trump and sanctions on two OPEC members, Venezuela and Iran, also have been key factors in price swings. [Really? Iran and Venezuela are entirely irrelevant and have been for several years.]
• The US is now producing more than 12 million barrels a day and is on pace to become a net exporter within a few years, a growth story that is a ‘seismic event’ for the economy, according to IHS Markit vice chairman Daniel Yergin.

Say what? "... making the crude market more volatile."

Really?

Fact check. Link here.

You want to see volatility? Go back to the days when OPEC was in control. Go back to the days of the peanut farmer. Go back to the OPEC embargo when Richard Nixon was president. You want to see volatility? Get woke.

Apparently someone didn't get the memo. See this research report, why the price of crude oil will be "range-bound" for quite some time.

The magic numbers from November 7, 2016 --

The magic numbers:

• $40 oil: a lifeline for the US oil industry; they may or may not hang on
• $50 oil: they hang on and the US oil industry survives
• $60 oil: the US oil industry thrives

WTI back in 2016 (and Bakken oil was selling for a lot less):

• November, 2016: $52.36
• February, 2016:  $36.38

Shale oil is the new "swing producer." Even Saudi Arabia cannot react as quickly as US shale. Saudi cannot react as quickly for at least two reasons:

• Saudi sets their prices by committee, based on OPEC input/policies
• Saudi does not have 5,000 DUCs / inactive wells

The Bakken alone has about 2,500 DUCs / inactive wells that can be brought back into production within weeks, if not days.

At $75-oil the US shale companies will be producing at maximum rates.

At one time, I was not convinced that the US was the "new" swing producer. In fact, I can't remember what I actually wrote at the time when folks were debating that exact point, whether the US was the "new" swing producer. But the tea leaves certainly suggest that for the foreseeable future the US is the "new" swing producer. In addition:

• the US shale sector is market driven (not policy driven)
• the US oil industry is much more transparent than OPEC and/or Russia
• the US oil industry is much more flexible, dependable than OPEC and/or Russia

My hunch, all things being equal, global oil consumers would prefer working with US suppliers as opposed to working with either OPEC or Russia, but then I'm pretty crazy about the US.

Back to volatility. One might want to ask why the price of oil was incredibly stable (flat-line) from 1945 to 1970.

OPEC was formed in February, 1960, and followed immediately by a recession in the US. A decade later, the OPEC embargo and sky-rocking crude oil prices and long lines as the gas station.