The Sweet Spot -- Reason #6 Why I Love to Blog -- A Reader Provides Assessment Of Crude Oil Production In The US -- June 13, 2020

A reader provided this assessment regarding the decline in crude oil production in the US:

No surprise with the decline in production of oil in USA.
-Shale wells decline rate of 6-8% per month.
-Rig count down for horizontal rig count down by 70+ percent
-Horizontal wells deplete ~70% on first year on average.
-Some wells shut in due to low spot price. Generally transport costs are fixed by pipeline increasing breakeven price to oil producer.
-Bankers will not be willing to loan $$$ to oil production companies unless you see solid $50+ oil prices.
-Shale oil production is more than 50% of oil production in USA.
-Large and small oil are cutting spending for shale, but keeping the long term projects going. One can drill and complete a shale well in months, not years.

Oil in storage is no surprise.
-Looking at EIA data, most of oil in storage increase is on Gulf Coast PADD 3. Other areas are even to down. https://www.eia.gov/petroleum/weekly/crude.php#menu
-IMHO the contango purchased oil is being delivered to California and Gulf coast.
-Tanker rates have decreased for both spot and long term charters indicating that the contango oil is being delivered.

IMHO price of crude should be in the $50s in a few months due to contango deliveries and continued reduction of oil production due to drilling downturn. Before shale oil a legacy oil will drilled vertically would typically decline 10-15% per year, unlike 70% for a shale well.

I replied that I had opined on the blog that the "sweet spot" for WTI is $50. So let's see if I can find that. Here's one post, dated October 30, 2016:

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The Sweet Spot

October 30, 2016

For several months now I have opined a number of times on the blog that for the US, the sweet spot for the price of oil is $46 to $52 or something like that, maybe $48 to $56, somewhere in there.

So, now, this evening over at CNBC, "why an analyst thinks we've just entered the 'sweet spot' for oil prices."

I haven't read the article. So, now I can read it. And not much there, except this:

"There's probably a sweet spot between $50 and $55, but I think we're setting ourselves up for some sort of a disappointment at the OPEC meeting," explained Tom Kloza on CNBC. "I think the language is probably going to be thoroughly bullish. They'll pay lip service to some sort of a freeze."

$50 to $55 is certainly not going to help Saudi Arabia much. So, we'll see.

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Wow, Wow, Wow

June 13, 2020

That was posted back on Halloween, 2016 -- nothing seems to have changed in four years. LOL. Maybe we'll be lucky to see $50-oil this Halloween (2020).