U.S. Oil Drilling Grinds to Halt at Key Shale Hotspots

The sudden declines in production illustrates the fatal flaw in the shale business model.

By Nick Cunningham of Oilprice.com:

Oil and gas production in the United States has peaked and is already in decline. The latest data from the EIA’s Drilling Productivity Report sees widespread production declines across all major shale basins in the country. The Permian is set to lose 76,000 bpd between April and May, with declines also evident in the Eagle Ford (-35,000 bpd), the Bakken (-28,000 bpd), the Anadarko (-21,000 bpd) and the Niobrara (-20,000 bpd).

Natural gas production is also in decline, a reality that occurred prior to the global pandemic but is set to accelerate. The Appalachian basin (Marcellus and Utica shales) are expected to lose 326 million cubic feet per day (mcf/d) in May, a loss of 1 percent of supply. In percentage terms, the Anadarko basin in Oklahoma is expected to see an even larger drop off – 216 mcf/d in May, or a 3 percent decline in production.

The sudden declines in production illustrates the fatal flaw in the shale business model. Once drilling slows down, production can immediately go negative due to steep decline rates. Shale E&Ps have to keep running fast on the drilling treadmill in order to keep production aloft. But the meltdown in prices has forced the industry to idle 179 rigs since mid-March.

With drilling grinding to a halt, output has slumped as “legacy” production declines take hold. That is, without new wells coming online to offset the declines from existing wells, overall production falls.

In specific terms, the Permian, for example, will lose 356,000 bpd from “legacy” wells in May, more than overwhelming the 280,000 bpd in new output from new wells. On a net basis, the Permian is set to lose 76,000 bpd in May.

That legacy decline rate has deepened with each passing year, requiring more aggressive drilling each month to keep production on an upward trend. But the treadmill has finally caught up to the industry.

The OPEC+ deal won’t rescue a lot of shale companies. The demand destruction is simply too large for the OPEC+ cuts. With WTI at $20 per barrel on Tuesday, Permian drillers are actually receiving quite a bit less than that.

“Since humans started using oil, we have never seen anything like this,” Saad Rahim, chief economist at Trafigura Group Pte. Ltd., told the Wall Street Journal. “There is no guide we are following. This is uncharted.” He estimates demand has plunged from 100 million barrels per day (mb/d) to just 65-70 mb/d currently.

The WSJ says that oil storage in Cushing, OK could be full by the end of the month, which could abruptly force production shut ins in Oklahoma and Texas. That suggests the EIA estimate for a decline in U.S. shale production of 183,000 bpd in May could be optimistic.

Meanwhile, analysts are eyeing a rebound for gas because of the supply curtailments already underway. The shut-ins in the Permian also help balance gas markets because associated gas will decline along with oil.

“We believe the prospects of crude oil shut-ins and lower oil drilling activity are likely to shift the natural gas supply-demand picture from bearish to bullish over the next 9months assuming normal weather,” Goldman Sachs wrote in a note. “We assume 2021 Henry Hub natural gas price of$3.25/MMBtu on average, above our $2.75/MMBtu mid-cycle estimate.” Henry Hub is currently trading at around $1.70/MMBtu.

The crisis for oil drillers has some of them clamoring for regulation from the Texas Railroad Commission. But no matter which way the RRC decides, cuts are in the offing.

A more worrying prospect for U.S. shale is that the OPEC+ deal, as ineffectual as it was at boosting prices, may not prove sustainable. “The current deal has been forged under duress and is much more likely to fall apart over time,” Bjarne Schieldrop, chief commodities analyst at SEB, said in a statement. “Saudi Arabia’s economic need for a production volume of 12-13m bl/day in a $50/bl world, and Russia’s strong distaste for production cuts as a means for achieving higher prices, are fundamentals which the current deal cannot circumvent.”

Saudi Arabia hiked prices for shipments heading to the U.S., a nod to President Trump and the OPEC+ agreement. But it cut prices to shipments to Europe and Asia, evidence that Riyadh is not done with its market share strategy.

“The official selling prices for its May oil shipments, which have been announced after a one-week delay, should be interpreted as a warning to other oil exporters if they do not toe the line,” Commerzbank wrote on Tuesday. “[T]he price war is continuing to simmer on a low level.” By Nick Cunningham of Oilprice.com

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  87 comments for “U.S. Oil Drilling Grinds to Halt at Key Shale Hotspots

  1. c smith says:

    “The Appalachian basin (Marcellus and Utica shales) are expected to lose 326 million cubic feet per day (mcf/d) in May, a loss of 1 percent of supply.”

    1 percent? Hardly seems to matter.

    • Wolf Richter says:

      1. that’s not what the whole article said. But just one phrase in one line about one natural gas field. It talked about other natural gas fields also, and declines there.

      2. Even if it were 1%: It doesn’t matter in the stock market, but it matters in the supply of energy. If you consistently under-supply NG by 1%, eventually you’ll have blackouts and price spikes.

      • Jeb says:

        There is underground storage of natural gas, and USA is coming out of a warm winter

        • Wolf Richter says:

          Yeah, and by October, it’s pretty full. And by the end of heating season, it’s pretty empty. Every year. It’s a seasonal buffer to get the US through the winter. It doesn’t provide NG long term and doesn’t make up for a longer-term production shortfall.

    • char says:

      It is 1% after a month. If they loose that every month it is 12% after year

  2. nick kelly says:

    According to a piece on Oilprice US banks are getting ready to foreclose on shale assets and are looking for expertise to operate them themselves.

    This looks like more like a CYA plan by banks under the gun than anything realistic.
    The assets pledged against the 200 billion are mostly the acreage, which at these prices are worthless. Of course, that could change. If the plan here is to hope for the future, the banks might as well leave the present operators in place with very limited or zero additional credit.
    I am assuming that shares will be wiped out, if there is anything left.

    But the idea of a bank- owned oil co seems odd.

    • cienfuegos says:

      All oil companies are bank owned.

      • Bill Murphree says:

        Cienfuegos: You are full of sh?t. There are responsible companies that have been sitting on the sideline waiting for this bubble of wall street money being fed to a cash incerator pops and reality returns. They pay their bills employ good hard working people and don’t cry for a bailout. The follow the herd dumbasses drilled themselves all the way into bankruptcy. Now we wait for the dust to clear and try to recover ourselves from the gut shot of having your commodity become near worthless. In time this will turn and we will get back to work and hope that bankers and wall street never give those bastards a dime. They will though in the coming supply shortage which always follows the oil field depressions. And we are not owned by a bank!

        • Clay says:

          Bill, for those of us who don’t know as much about the ins and outs of the oil companies, can you share a little on what the responsible companies have been doing while sitting on the sidelines? Are there responsible shale companies that can afford to wait it out? Or are we talking about non-shale plays and adjacent industry companies? Thanks!

        • M says:

          Bill: the banks are legally the beneficial owners of all assets that are security for their loans, including land and oil of any type. Some oil companies may have adequate capital and no secured loans, possibly. Those are the exceptions.

          Leveraging by using debts is now taught as proper business management and has mushroomed due to the ultra low interest rates given by the Fed, a bank owned cartel, to banksters and their cronies — even reduced rates given to a few others. Sadly, since coronaviruz reinfection is apparently possible per South Korean and other experts, this pandemic and the resulting, reduced demand for and lowered price for all oil will continue for months, many months.

          Oil producers with high production costs are toast. Sorry.

          FYI: Stupid tablet added the z for some reason after the virus name.

  3. studeba says:

    It seems like Shale should put a ceiling on the price of oil. It’ll begin when/if it’s profitable again. That said, unfortunately for many working in the industry, oil’s days as a widespread fuel source are numbered.

    • Dan Romig says:

      Mike Hughlett’s Mpls Star Tribune headline & article today:

      “North Dakota oil companies have shed 2,000 jobs, could cut 6,00 more.”

      “The North Dakota rig count now stands at 35, down from 52 last month and 55 in January, according to state data released Tuesday.”

      The count has not been below 20 since the 2008 financial crisis, but it is expected to continue dropping, and may hit the teens soon according to Lynn Helms the ND minerals director.

    • Adam says:

      Only a problem for those “in the industry” i guess?

  4. Anthony A. says:

    Of course they stopped drilling….but, there are over 8,000 drilled,but not competed, (DUC’s) well in the U.S (EIA, 2019 report). These wells can be brought online (producing) in about 30 days. This is what’s driving the OPEC crazies nuts. Once prices go up,in a short time our “new” oil is brought into production and sold.

    Plus, if you BK a shale player, that in-ground oil is still there for the new owner.

  5. Rcohn says:

    I enjoy reading your articles at oilprice.com
    Three questions

    Once inland storage capacity is full , is new oil in the Permian worth anything ?

    How quickly does refined gasoline and jet fuel decay in storage ?

    How much can refineries reduce their output of jet fuel

  6. Joe says:

    The Canadian Oil Sands are in the same debt boat where it is more profit in leaving it in the ground.

    • Paulo says:

      Not exactly, Joe. Apples and oranges. With the Oil Sands upfront development costs are huge, and financing is long term compared to US Shale. When the oil price collapses as it has, production is reduced or can be ordered reduced, but the plants stay operating as it is cheaper to produce at break even or loss than shut down. A shut processing plant is a decaying asset making a far greater loss than what is happening right now. Plus, it depends when the site was developed and how long it has operated as to how much the plant is losing during this slowdown.

      My son is one of those highly paid maintenance tradesman in the Oil Sands. While overtime is now non-existent, it is still business as usual with a new collective agreement. While never say never, it looks like work will continue for this year, anyway. What is on hold are new projects. If you are in the construction phase or in construction trades, you are not working, or if you are….not for much longer.

      Even shut down portions of facilities will be rebuilt and maintained during any slowdown. It is cheaper to rebuild/replace machinery now, than later.

      • Paulo says:

        How many more days do I have to be in the moderation jailhouse? I’m about ready to pack WS in. It has become beyond irritating to never see any replies to something I believe is important. How is this response to Joe in violation of the commenting guidelines? It is in direct response to his comment, it is about oil (which is what the article was about), and it is polite.

        • Tom Pfotzer says:

          Don’t pack it in, Paulo.

          Place wouldn’t be the same w/o you.

          Keep the eyes on the target.

        • Bruce says:

          Paulo – I don’t know about any jailhouse history, since I don’t read reader comments every day, but I think you’ve had some valuable comments here in the past and would hate to see you go.

        • WES says:

          Paulo:

          Don’t feel bad! Wolfe puts me in the dog house all the time!

          But he is usually pretty good about posting bail!

        • Wolf Richter says:

          Paulo,

          You’re not in the “moderation dog house,” and you haven’t been in it. So I’m not exactly sure what you mean at the moment.

          But in general terms, you like to diss Trump publicly, and when you do that, it can get you tangled up in the trip wires. And then I have to go in and edit out the name-calling and other stuff. Just makes it harder for me.

        • nick kelly says:

          Paulo: I’ve been a contributor to WS (in Oct 2018 where I predicted a massive crash in pot stocks) and get moderated all the time. AND I’ve had comments removed ( they may have been made after a few)

          It’s not a doghouse, it’s a holding pattern like at an airport.
          BTW: I’ve thought of taking a break too, more because of the ‘it’s just a flu’ type comments. But now I often delete my reply after venting.

        • Energy has always been a matter of national security and political action and reaction. We have a “national energy policy”, it just isn’t written down anywhere, and that policy continues across administrations, and that policy created an energy independent US, largely through low interest rates and corporate investment . In the past the policy included military aid to the Saudis, now Russia is part of OPEC+, the alliances are shifting. The export of LNG to US allies achieves geopolitical benefits. The question here will cutting US production do irreparable harm to the domestic economy? https://www.cnbc.com/2020/04/10/trump-says-us-will-help-mexico-along-with-its-opec-production-cuts.html

      • Prairies says:

        Oil Sands exploration and production is cheaper than Shale, this article is about Shale. Many Shale operations are shutting in wells that push the production numbers above what they can sell or store.

        I am sure with Western Canadian price being below $5 they will consider a holding pattern. You may want a day to day update from your son as to how things are going in Alberta because the numbers are frightening and to say they will continue selling at the current $3 mark seems like a mix of insanity and desperation.

    • SteveK9 says:

      I’ve always loved the re-branding from tar sands to oil sands. Tar sands sounded too much like the ecological mess that it is.

  7. As long as Fed keeps their thumb on interest rates some of these will drill till they drop. I imagine a scenario of $10 bbl, production continues because corporate investment needs the revenue, the oil being sold off market to hedge funds? or foreign sources who have no strategic reserves. The damp on prices, oversupply could extend indefinitely. I am sure the admin does not want wholesale layoffs in the industry. Maybe Wall St should be bullish, plenty of cheap oil “well” into the (over) anticipated recovery. Not good for renewables however, where climate change meets cheap fossil fuel.

    • char says:

      Renewables are a way to get people employed. In Europe* there is no oil or gas, all imported so it does not kill European oil jobs but it does create jobs in renewable. Guess what they will do. Same is true of China, Turkey, Korea & Japan

      * Vassal states in Europe who are not EU members don’t count.

    • SteveK9 says:

      More likely I think are tariffs on imported oil

  8. rhodium says:

    The bankers can just hire the same engineers and workers and magically get positive cash flow. The current owners are probably just trash that know nothing about their own business. /s

    If in reality oil field “assets” can only produce negative cash flow under the circumstances, then until oil quadruples in value or whatever it takes to break even, they’re really just acquiring empty fields in the middle of nowhere.

    In the negative cash flow economy, we exclaim, this collateral sucks!

  9. tim mellis says:

    “…widespread production declines across all major shale basins…”

    Yes because they aren’t working because of covid-19, hence the decline. The production of the restaurant down the street is down too because they are closed. But wall street is doing just fine becuase they are pumping our dollars into the banks, god bless them.

    • Adam says:

      I don’t think conventional fields would neck down like that in a month or two, shale is a treadmill.

    • Prairies says:

      The oil price tanked in North America before Covid19 lockdown measures were implemented. The real loss in demand started back in December and January when China and Russia closed off borders and production/consumption from China went to 0.

      I see a lot of people forget production has been down for 5 years in the oil markets, the next step may involve shutting in fields. Minimizing expenses and only producing what the demand can consume. Until manufacturing starts up expect more pain for the supporting businesses.

  10. Tom Pfotzer says:

    As much as I’d like to see the curtailment of fossil fuels, this article strikes me as a small mole-hill.

    As C. Smith stated above, under the current conditions a reduction of 1 percent of production is not even worth mentioning.

    As Studeba said, shale puts a ceiling on U.S. energy prices. When the prices rise again, production will re-start.

    The most significant aspect of this story is that production is slowing, layoffs are occurring, and one of the few (recent) bright spots in the U.S. jobs scene is dimming rapidly.

    And it isn’t good for renewables – not one bit. That’s too bad, but that’s been the case for fracking since day 1. We doubled down on fossil fuels when we should have made the leap to renewables. Think how many houses would be full-solar with the amount of capital that’s been lavished on Fracking.

    We are not going to be able to power electric cars with oil.

    Should anyone ever be interested in doing something actually useful with stim-bucks, we could use a new, more transmission-efficient grid, and we need some more solar farms in the southwest.

    ==========

    Picking up on VintageVNVet’s remark last-thread re: transportation efficiencies, note that most petroleum use here in U.S. is for transport.

    VintageVNVet: how about we:

    a. merge BNSF, CSX and UPS into CoNumber1, and FexEx and UnionPacific and Norfolk Southern into CoNumber2, and split USPS between the 2 companies, then

    b. Convert all the local UPS, FedEx and USPS depots into container aggregation/disassy points. Shippers use web app to pick a container to use, from bread-box to 40′ ocean-container. The empty container gets ordered online, dropped off over-nite. Once filled by shipper, the containers get picked up, aggregated into std-size-formfactor, loaded onto a train-car, sent off for remote delivery/switching/re-aggregation at key points in the railroad network. Improve rail network: more trains, more bi-directional-simultaneous track, more sidings to permit trains to pass one another.

    c. Have local delivery, from depot to final destination, done at night using driverless (robots). Nobody’s on the road, the robots can cruise at 35mph and do their thing.

    Whole model uses way less fuel (maybe 40% less), way less labor (easily 40% less). Labor and fuel are the major cost elements of transportation.

    MC01: what’s your take on this?

    • VintageVNvet says:

      Tom,
      You appear to be way out front of me on this,,, with actual suggestions, where I am out in the hoping and speculating re possibilities going forward.
      Your suggestions sound like a lot of the ROM that I dealt with for years from various entities issuing RFPs with nothing more, sometimes much less project design guidance than what you mention.
      Will add that I saw several facilities in those drives across country, labeled, I believe, as ”multi modal,” and appearing to be close to your c. concept of train depot to final delivery hand off points…
      I suppose if anyone on these threads can communicate this to WB, he, as owner of BNSF these days, and definitely a patriot, would be the likely candidate to expedite the changes to rail and trucking needed to bring these concepts to the current possible/optimum state of completion and cost efficiency.

      • Tom Pfotzer says:

        WB came to mind, VintageVNVet. Also the folks that run Schneider, JB Hunt, and the rest of the really big trucking firms. Those guy are in deep (*(*%# right now, and might play ball.

        As I considered it, maybe a merger wouldn’t necessarily have to happen. We really do need to spread some wealth-earning cpy around.

        What might also work is to split the work up.

        a. Fund the railways with stim-bucks to do network upgrades and interchange point automation. That needs to happen anyway. BTW, there is a huge amt of rolling stock and locomotives awaiting work right now. Leave those big guys as-is.

        b. Write a transporation dept procurement, a big whopping procurement, for construction of 200 local distro hubs located on railway lines. That could happen right away, using existing tech. One org can only submit one bid. (no big-guy domination in this part of hte project) Co’s can partner with technology firms if they want for pickNPlace automation to assemble/breakdown the std-form-shipping-units (e.g. 20′ or 40′ TEUs).

        c. Write another procurement from Transportation for 10,000 local drivers to run the night routes. Don’t need all the tech (robots) at the outset. The driver robots are the biggest tech hurdle, spread it out over 10 years.

        d. Write one more procurement, also from Transportation, for someone to design and publish the STD manufacturing specs for the various containers. Then have each of the 200 local sites award bids for construction of a starting inventory of containers.

        That puts a heck of a lot of people to work right now. A good bit of that work can be done in secure locations (corona-secure), and almost all the admin work can be done from home.

        When we’re done, we get a way-more efficient transportation system, and a whole lot of new businesses, and the Feds could have finally devolve the USPS into profit-seeking small businesses.

        • VintageVNvet says:

          keep going Tom,
          IMHO you are onto almost a ”prospectus” level of concepts already, and I would think others here who know a ton more than I about this could vet/help with your ideas, (MCO1 comes first to mind, but I think some others have chipped in with very well informed comments also.)
          One thing about containers: there are tons and tons of them all over the world, cheapest I saw last week was $2,600 delivered locally one off…
          Reminds me of looking up how many 40′ were landed daily just in Gulf of Mexico and west coast ports a few years ago trying to tell a friend how a modern invasion would happen here, as opposed to WW2. ( 75,000 containers PER DAY x 40 troops = 3MM!!)
          We are rapidly approaching the level of unemployment in construction that occurred in 06-10; the official word was 15% not working, but all the best folks I knew were off work, and I still think it was more like 15% working!
          Go for it!

  11. Michael Engel says:

    1) Cass will rust until 2024/ 25, after the next election, when it
    will get a new engine.
    2) Houston oil is ugly today and will become uglier tomorrow.
    3) Houston furlough will keep the ugly black gold in a ground vault, for few more years, until oil will be worth a lot.
    4) When NYC & SF elite will freeze apartments, the NYT will beg for oil.
    5) Covid-19 caused an oil glut, forcing oil to duck. Oil assets destruction will constrict supply. The new gov will not be able to keep us warm.
    6) Nicolas Tesla invented radio, electromagnetic coils, ac engines, lights , energy with rain storms in his tiny bedroom. Thanks to GE Charles Steinmetz, who developed ac generators, America stopped killing whales for oil.
    7) When HQ energy sector guppies will go BK, Munger will accumulate their assets deep in his pocket for B&H, because the elite sent their price well below their intrinsic value, because they are so ugly. That’s Graham Dodd.
    8) Munger can wait 20 years for the next arctic freeze.
    9) When the elite will shiver and freeze in their houses or apartments, they will pray for oil.
    10 Munger in his grave will be laughing thanks to the elite bots.

    • Dan Romig says:

      Michael:
      1865: George Westinghouse patents the rotary steam engine.
      1869: Westinghouse patents the railroad air brake.
      1886: Westinghouse Electric Company is founded.
      1888: Nikola Tesla receives a patent for the AC motor & begins working at Westinghouse Electric Co.
      1914: George Westinghouse dies with 361 patents & 60 companies founded.

  12. David Hall says:

    Whiting Petroleum filed for bankruptcy. Oil field service companies have been laying off people.

    In 2019 four FDIC insured banks failed, most in the later part of 2019.

    In 2020 two FDIC insured banks have failed.

    • Ensign_Nemo says:

      Um, this is actually the biggest problem in American capitalism today.

      There were 7870 FDIC insured banks in 2002.

      There were 4708 FDIC insured banks in 2018.

      https://www.statista.com/statistics/184536/number-of-fdic-insured-us-commercial-bank-institutions/

      Yet, the number of actual failures is in the low single digits per year.

      It’s obvious that the banks are merging rather than going out of business, but why do we let this happen in a nominally capitalist society?

      All of the local small banks get gobbled up by the big banks.

      Then the big banks are “Too Big To Fail” and get literally trillions of dollars of support from the Fed and the US Treasury. No other industry get anything even close to this amount of “socialism for the rich”.

      It’s cronyism, not capitalism.

      The word “bankruptcy” today almost never (four times in 2019) means that a bank has failed. It means that someone or something that is NOT a bank has ruptured.

      The word today means almost the exact opposite of its original meaning, but nobody ever stops to think about that.

      Why is banking the ONLY industry in the US with an annual 99.9% survival rate for its companies?

      We can’t continue to sacrifice the real economy to prop up the fake economy forever.

      We’re running out of real producers of wealth to tax or cheat to pay for all of this financialization BS.

      Maybe the bankers would be a wee bit less inclined to gamble if they had a realistic chance of actually going out of business and being forced to find a new career.

      • Ensign_Nemo says:

        BTW, from 2010 through 2018 – eight years – there were only 19 new FDIC-insured banks chartered in the USA. That’s about 2 or 3 a year.

        https://www.statista.com/statistics/193052/change-in-number-of-new-fdic-insured-us-commercial-bank-charters/

        From 2000 to 2008, mostly before the last banking crisis, there were between 90 and 188 per year.

        That shows how little actual “creative destruction”, i.e. truly capitalist activity of bad businesses closing and better businesses opening up to replace them, is happening in this sector of the economy.

        Banking is not a capitalist enterprise anymore, it’s a socialist enterprise at best. It seems to be slouching towards communism, in the economic sense that “the state owns the means of production”, with the Fed actually making the decisions rather than market forces.

      • lenert says:

        Aye. And to think we give money to Brokers expecting them to make us rich.

  13. Anthony A. says:

    Oil prices will come back up, they always do.

    Like plastic?, try living without it! And it is made from hydrocarbons.

    • VintageVNvet says:

      10-4 AA,,, and that is EXACTLY why we need to stop, or at least slow way down on the consumption of oil as fuel ASAP!
      Some very clear analyses have shown need for remaining fossil fuels as essential component(s) of life far beyond best possible combination of current fuel use and needs for oil as base material for manufacturing going forward just in the next century or so, until physics and chemistry produce the next and we hope much more effective manufacturing processes.
      Leaving it in the ground for a while would appear to be the very best investment at this point in time.
      Storing the most possible in the strategic tanks also seems a good idea, though the maintenance/security of those tanks also a concern.

    • Adam says:

      I think you need to more closely study the WTI chart, all these energy companies are loaded with debt for a reason.

      The product they sell is having a hard time rising in price, I think it’s time we rethink the assumption that oil prices rise over time. However rethinking that one is a doozy.

  14. Michael Engel says:

    1) Market makers might put Wave C on hold til Fri, day #9, close.
    2) The Nasdaq might delayed dma50 & dma200 inversion for a little longer.
    3) TR til Fri close, or up towards the cloud and Mar 5/6 gap,
    and away from the Apr 13/14 gap.
    4) If Wave C is coming, its exact starting point would matter at all, because

  15. td says:

    What we’re talking about is 1% per month production reduction, steadily accelerating. I would thing we’re looking at a 20% reduction by year end and 50% by the end of 2021 if things don’t change.

    If we have a nice deflationary depression shifting to an inflationary depression, there won’t won’t be much capital available for future drilling.

    • VintageVNvet says:

      You would be absolutely correct in a rational world td,
      but in the current situation, it would not surprise me at all for the FED to start paying folks to take their money and spend it any way they can find to spend it, including using the ‘beyond free’ money to ”drill baby drill,” etc.
      In that scenario, not only would there be plenty of capital, it would actually put money into the borrowers pockets to spend it on drilling…
      Oh, wait,, that is or has already been happening…
      Sorry to be behind the news again and again and again.

      • Social Nationalist says:

        The Fed can’t do any of that. The Fed doesn’t create money. US Treasury does and banks do through loans which the Fed tries to regulate.

        Part of what created the “great inflation” or what they call stagflation was the surge in US printing in 65-73 pushing alot of money into the economy to keep deficits low via BWs. It wasn’t until 1974 the US began slowing the presses(and frankly by 1979, we had deflated new dollars down to multi-decade low……..how about that lol) but the “swish” of those dollars were rumbling in the US economic machine into the early 90’s.

        That is part of the reason why the US prefers now to borrow, rather than print money. Borrowing from creditors doesn’t allow the money to “swish” like it did into the economy, thus reducing the chances for inflation. We pay back in spending.

        • Portia says:

          The Fed doesn’t create money? on Sept 17 2019, via Wall Street on Parade:

          “The oversized demand for the repos and the lack of available funds drove the overnight repo rate to an unprecedented high of 10 percent at one point. Typically, the overnight repo rate trades in line with the Federal Funds rate, which is currently targeted at 2 to 2.25 percent by the Fed.

          The Federal Reserve Bank of New York (always there to rescue Wall Street from its hubris; see “Related Articles” below) had to jump in and infuse $53 billion into the repo market. It has promised to make another $75 billion available this morning.”

          That was just the beginning. It’s the new normal. I have to stop going to that site–I am better off not knowing this shit.

        • Wolf Richter says:

          Social Nationalist,

          “The Fed doesn’t create money. US Treasury does… ”

          How can you still say this???!!

  16. Social Nationalist says:

    Frankly, if I was a Eurasian oil producer, I would play the long game. Let the US blow through its reserves by reducing the amount of oil produced until the 2030’s when the US’s wells begin to dry up and its takes higher and higher prices for new drilling, which also not be popular. The US doesn’t conserve, but wastes exports on this stuff. Then you can get back more control. I always said the 2020’s will be the US’s next big prime boom. Boomer retirements fade out which means higher economic growth will be needed to produce jobs, but the fade out also puts them in the goldilocks zone of post-retirement spending. Over a decade out from the financial crisis, primary dealers will expand credit more, with the aging Gen Y to take up the slack into their prime spending years(and a boost to RE). A Government boom in investment/infrastructure spending which has a actual multiplier in the early 2020’s. No reason to keep oil low all decade.

    • Max Power says:

      Not a workable plan I’m afraid.

      By 2030 reasonably-priced EVs and PHEVs with at least a 35^ mile range will be very common. This will be put a significant demand cap on oil. The sheiks and dictators won’t be able to charge whatever they want as people would have viable alternatives.

      Basically oil is done for. Don’t get me wrong, it will be always be an important commodity in demand but it’s rather unlikely we’ll see prices over $65 for a sustained period of time in the future.

      ^PHEVs with ~35 mile range are starting to come out, and in the type of vehicles people actually want to buy. Examples are the upcoming Toyota RAV4 Prime and Ford Escape PHEV. Given that the average American commute is about 15 miles each way, a battery holding 35 probably means at least a 75% reduction in the use of gas for such a vehicle (which is already quite fuel efficient given it’s a hybrid). Also, you don’t need any special charging infrastructure either. That size battery can be recharged overnight using a simple 110V outlet.

      • Adam says:

        If oil is done for so is your “electric” stuff.

      • SteveK9 says:

        You need the other half of the equation for this to make sense … uranium. There are no electricity mines, you have to generate it from either fossil or nuclear fuels. And, I doubt we will go back to building hundreds of coal plants … unless we have lost our minds (not impossible).

  17. a.hall says:

    America used Shale Drilling to flood the Market to drop the Oil Price, to Damage the Russian, Iranian and Venezuelan Economies. The Price dropped to $22 a Barrel; 10 % Cut in Production,Forced by Trump; $32 a Barrel >>>$28 a Barrel. 1 Billion Barrels Flushing around World Market.
    UK Plastics Industry imports US Shale Gas Tanker- fulls for Cracking with Ethylene. US Shale Wells just Stopped Production. YIPPEE!!! No Shale Gas ,No Plastic Ocean Pollution.

    • Happy1 says:

      American shale companies don’t have a political agenda, they are trying (and largely failing) to make money. The side effects on Venezuela are interesting but Venezuela made a giant bet on unsustainable oil price gains and basically banned private enterprise, any surprise they are starving?

      • Adam says:

        They are also under constant attack, from other powerful governments.

        • sierra7 says:

          Adam:
          +1000
          Too many Americans swallow the propaganda that these countries that are “failing” are doing so because they are just failures.
          Hardly not a word is printed that tells the sordid and terrible story of the sanctions placed on them by the so-called “democracies” or, “first world nations”.
          It is a disgusting story.

  18. WES says:

    Fracking is Wall Street’s version of Green Energy.

    Green Energy is where you put in more energy than you get out.

    Fracking is where you put in more money than you get out

    • cienfuegos says:

      Excellent.

    • Anthony A. says:

      “Fracking is where you put in more money than you get out”

      But think of how much fun everybody is having spending the money!

    • Tom Pfotzer says:

      Can you provide reliable figures that indicate that it takes more energy to produce a solar panel than that panel produces over its lifetime?

      Spoiler alert: unless the solar mfg’rs are getting subsidized energy costs, how can they afford to produce a panel?

      • TheRealMRDyno says:

        Easy, they just charge more than the panels will ever be worth based on generated power.

    • Bill Murphree says:

      Wes you are on to something there. My observation is that cost to acquire, drill frac and produce always expands to equal or exceed any oil price. That has been the history.

      • Happy1 says:

        Not if oil is at 100$ a barrel. That’s what fracking was born from a decade ago.

        • Bill Murphree says:

          Happy: They didn’t even make money then. That was when the disinformation began. The only people who ever made money were the flippers who leased and flipped or the first companies who started drilling acquired acreage and flipped with the hype at maximum. Many of the conventional producers who were already there saw the play for what it was and took their chunk of money for selling and went to the sidelines.

        • Adam says:

          I remember back in 2014 there was discussion from oil companies re: the low oil price and how they were having difficulty making money. (I don’t think it was just frackers either)

          WTI in the low 100s then . . .

  19. gorbachev says:

    A terrible use of of oil is turning it into gas. Let it

    be used to make things that can be recycled.Hydrogen and

    electric are the best ideas out there.

  20. Michael Engel says:

    1) Some basic TA for those who might be interested : If SPX will reach/ breach dma50 it will become an upthrust
    above the Jan 2018(H) @ 2872.87 resistance line. An UT job is to send prices down, but if SPX will keep moving higher, it will become a failed UT.
    2) SPX dma50 < dma200 already inverted.
    3) Front line health workers on overtime cost a lot of money.
    4) Hazmat union workers are very expensive.
    5) Lab researchers doing diagnosis are expensive.
    6) Testing covid 19 will cost more than 10 cents.
    7) Insuring the testing & diagnosis process is also expensive.
    8) The economy might stutter for a while, but the health sector
    will boost US GDP

  21. Michael Engel says:

    1) Oil glut can last for decades. It will keep oil and other energy resources available for a long time.
    2) EV & PHEV are expensive, with small penetration, irrelevant with WTI 30% of the survivals, subsidizing them to keep them alive.
    7) The energy sector is very important. To keep America warm and running America need energy. The gov will raise taxes to support the energy sector.
    8) WTI is elastic, but federal & state taxes on gas are inelastic.
    Currently they range between 40-60 cents/ gallon.
    9) If WTI will stay inexpensive and if federal taxes will move up to 60-100
    range, the consumer will not feel the change.

    • Adam says:

      In response to 1

      change decades to years

      • Prairies says:

        There has been an oil glut for the last 5 years, decades is the correct term. Your bias against oil and gas is showing.

        • Adam says:

          If there is such a glut then why is the US paying frackers to lose money?

        • Adam says:

          Most of the growth in production globally over the past decade is unprofitable US shale, and now that party is over. I think I read somewhere that the sweet spots are 90% drilled.

          I think MEs decades of glut is going to vanish rather quickly.

          But hey, maybe they keep blowing up the debt bubble, maybe.

        • Prairies says:

          My glut comment aged well here :P Didn’t expect it to only take a few days though.

  22. breamrod says:

    or worse .they raise taxes to the point that it doesn’t matter if oil is free gas will still be 2.50 a gallon! Meanwhile they ( the gov.) says “see the price of gas has recovered which means the economy is doing great”.

  23. Michael Engel says:

    1) Western Canadian Select get $4/ b.
    2) WI regular gas is $1.13.
    3) Excise state taxes and fees are $0.33 // or 0.33:0.80 = 41%.
    4) WI gas & taxes are very low in comparison to the rest of the country. Demand is falling, so excise tax must go up to cover politicians spending.
    5) The oil glut in the 80’s/ 90’s lasted 20Y, ex one big spike.
    6) The energy sector keep us warm and running.
    7) The whales will feast on the guppies and the gov will feast on the surviving whales, getting dividends.
    8) From the weak hands to the strong gov hands. US treasury
    can always click more debt, but the private sectors can’t.

  24. Island Teal says:

    Lots of good information.
    thanks everyone.

  25. Eastwind says:

    I don’t see it as a ‘fatal flaw’ that shale drillers can respond faster to market price changes than siberian drillers who have to have warm weather to add or reduce production capacity. I see it as a market advantage.

    What I think you mean is fracked well shale investors have over-valued shale wells by assuming that they would be able to continue production for years when in fact the technique produces oil for a shorter time period and production tails off more rapidly than non-fracked wells.

    It has always been the case that some oil wells don’t pay back the cost of drilling (and completing) them (e.g. dry holes). That’s not a business model flaw, that’s an inherent risk in the business that investors need to understand and properly price.

    And I include banks loaning money to drillers among investors who have mis-priced shale risk/reward. Some drillers will go bankrupt, that’s fine and good, it’s what’s supposed to happen.

  26. Augusto says:

    If you had a market based interest rate, say back at 5%, there would have been a lot less shale oil development. These easy money, artificial interest rates from the FED have not only kept zombie companies alive, they have produced Frankenstein oil companies, un-natural financial beings stitched together in a monetary laboratory. These monsters have now escaped into the world….and will now will wreck havoc on the real economy….of course unless Dr. Fed Frankenstein can captured the monster and put it back in its cage……instead of bread crumps, I’d recommend buying their junk bonds….

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