Nasty Nate to reduce crude supply

October 6, 2017 09:40 AM
Daily Energy Market Analysis

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Shale Slowdown
The shale slowdown, that Energy Report Readers knew was coming, is becoming more mainstream thinking. The Wall Street Journal reports that  “U.S. Shale Juggernaut Shows Signs of Fatigue Forecasts that abundant American oil can permanently meet global needs may be ‘myth,’ company leaders warn.

The Journal writes the pace of innovation that allowed shale drillers to maintain production even as prices fell appears to be slowing, experts say. The cost of labor and services, meanwhile, is rising in the most popular oil fields, driving up drilling expenses. And companies are facing a backlash from investors, who have grown weary of drillers focusing on growth over profit and insist they live within their means.

“There’s always a lot of exuberance,” said Robert Clarke, an analyst with energy consulting firm Wood Mackenzie. “But then something happens that kind of puts the brakes on.”

Future oil production is notoriously difficult to predict, and a surge in prices could certainly improve the economics of American shale. But a growing chorus of oil industry leaders, including some shale trailblazers, believes U.S. growth may peak sooner than government forecasters think—a development with ramifications for global oil markets. In recent years, shale production has reliably filled any voids in world supply, effectively taming volatile price gyrations. Potential limits to shale growth call into question predictions that this trend will continue.

“There are no new shale plays that have come forward,” said Mark Papa, chief executive of Centennial Resource Development Inc. and former CEO of EOG Resources Inc. “Their ability to spew forth infinite streams of oil is really just a myth.” A Must Read

Reuters reports that the Saudis are afraid of no shale.  U.S. shale oil coming to the market is not a concern, Saudi Energy Minister Khalid al-Falih said on Thursday, adding that demand will absorb it. “Shale coming in and happening again in 2018 doesn’t bother me at all. The market can absorb it,” he said, speaking at an energy forum in Moscow. Falih said oil demand was healthy around the world, and there was a steady reduction in global oil inventories. The rebalancing of oil inventories is well under way, he said. The recovery in oil markets has helped other commodities, he added. Falih also said that Saudi Arabia was looking at investments in India.

This is a great time to be looking at long-term bullish oil. Last quarter for oil the beast in years. This quarter could do even better.

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About the Author

Phil Flynn is a senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. Phil is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets.