End of the Shale Boom? Or Pause?

I’m sitting here watching Bloomberg report WTI at a hair over $46 a barrel, and reading Goldman’s gloomy prognostication that the six month price will be $39, rather than the previous $75, and the twelve month number will be $65 vs $80.  OPEC is continuing to hold the line on their production putting gigantic pressure on US shale production which has a break-even, depending on region, of around $50 to $75 per barrel.  Last week, Fortune’s Shawn Tully declared the US shale boom in serious jeopardy, correctly asserting that the high decline curve on unconventional resources demands ever increasing capital investment to grow production.

With US oil stocks remaining at 5 year highs, and reduced near-term domestic and international demand, I’ve become increasingly bearish on crude pricing for the short to medium term.  The Saudis seem to have a tight grip on the OPEC members, and they are holding the line to keep prices just low enough to stifle new shale production.

The industry is responsive to big shifts in economics, this time, though, it appears that the large conventional producers who have lower marginal costs, like Saudi Arabia, are in the drivers seat.  And that would be happy to drive the car over the cliff if it puts them back in charge of global prices.

More ugliness to come.

 

Rising US crude oil production knocking a hole in OPEC’s power over us.

Fuel Fix » Fracking threatens OPEC as U.S. output at 20-year high.