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Shale War Full Frontal
Despite Saudi prince bin Talal's explanations of the imbalances between supply and demand being the prime driver of lower oil prices, we thought a look at just where that over-supply is coming from might provide some context into the 'shale oil war'. As the following chart shows, since the start of 2014, rig counts in Saudi Arabia, Kuwait, and UAE have surged (just as they did in the mid-2000s). As of this week, US rig counts are now at 14 month lows as it appears clear that the core OPEC producers are intent on drowning the shale oil industry in excess supply.
Data: Baker Hughes
Chart: Bloomberg
And as T.Boone Pickens noted previously, the last time this happened (massive oversupply from Saudis), the US rig count was more than halved (from what then was an unprecedented surge)...
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Shale implosion: 5,4,3,2,1,..
Deflation is a fickle bitch. Where's Mr. Yellen?
when was it exactly that we refused to invade Syria?
1917
BTW-OT (sort a)
BDI now 63 points away from all time low. Yippee
of course he's pissed. He is one of the largest shareholders of citigroup..... bhawhahahahwhaha
No no no no no no no....
Bin Talil doesn't mean that there's a supply imbalance from OPEC and ME production, he means there's an oil supply glut because of expensive US oil production.
Now go figure, y'all
Well, we can have GS be given further trillions to bailout the shale industry.
It is for GS's children, after all.
"You've been giving us this green paper for decades in return for our hydrocarbons. Sure, the green paper has lost some of its value, but, as long as the game keeps going we are OK with that. But now, you expect to compete with us, hit our market share, AND keep giving us green paper for the privelege? F*ck no!"
The green paper is worth more than the gold because now they have to sell 27 barrels of oil to get an ounce of gold. Not so smart and oh by the way, you think they can keep their production constant without a rising rig count? That would mean their wells are pumping out more each day than less. So what if their rig count rises? The production in Texas has nearly tripled in the last three years, the Saudi production has been declining so they added 30 rigs, BFD. The US has added a lot production and could easily absorb it by refusing to accept Saudi oil dumped under the market price.
No can do ! Oil is a fungible commodity. Back to Econ 101...
Bingo! the QE expansion and Shale Oil correlation shows this....
Maybe its time for some more shock & awe
The shale business needs ZIRP, $6 per mmbtu gas and $120 per barrel oil to be profitable. The fall in oil prices has exposed the lack of profits, the dependence on ever-increasing debt, and reliance on high-yield bonds. Unless Auntie Janet pumps QE into shale, and the World price of oil skyrockets, the shale output will pretty much disappear by the end of 2017, IMHO.
As to the relative number of rigs in Saudi Arabia vs the US, keep in mind the typical Saudi hole produces something like 6,000 BPD oil while the average new shale hole produces about 330 bpd oil (EIA Drilling Productivity Report Jan 12, 2015). I believe the average production of all holes (new and old) in the Bakken is about 125 Bpd oil.
In its November 5, 2013 Today in Energy report, the EIA gave figures for "Rigs needed to sustain prior month's production" of oil and gas as about 170 for the Bakken and 250 for Eagle Ford.
The production of the average shale hole falls about 60% in the first year, and has fallen by 85% to 90% after 36 months. Thus, if drilling in the shale plays stops, expect shale production to be minimal by 36 months later.
Far as I know, that 6000 bpd is an old number and further more, increasing wells in the same reservoir leads to less oil per well and depletes the reservoir too quickly by depressurizing it. It is after all a finite pool they are sucking the oil from. The Saudi fields need water injection in order to bring up oil now, it doesn't flow much on it's own and has to be forced out. You don't know that the additional rigs aren't drilling injection wells and in that case don't produce squat.
Now your numbers on shale profitability are just stupid. Plenty of shale wells have been profitable at far less than your numbers because those numbers haven't been achieved during the shale boom and yet plenty of shale wells have paid themselves off completely in less than a year. Furthermore, shale well production is still rising 2000 BOE/d wells with 70% oil aren't uncommon at all in the Wolfcamp.
What did EIA predict for the price of oil to be in 2015 a year ago? Think anyone should put much faith in their data and projections?
They have only begun to drown
And here I thought the Saudis were our buddies...
EDIT - well, other than that time they brought down the WTC.
Do dancing Israeli's ring any bells ?
The Saudis were set up as 2nd line patsies if Americans weren't dumb enough to buy the official
story.Nobody ever went broke underestimating the intelligence erectus americana,so they
were not required..
Hey, you'd have to be some kind of crazy conspiracy theorist not to believe at least one of the official accounts of what happened.
"Dance, Dance, Dance to the Radio" , Joy Division. Punk 70's Britain
"Israelis Dance, Dance, Dance to the buring towers", Israeli Mossad Agents, 9/11 NY.
Some cultural difference! Some dance to Punk, some Dance to Power.
Transmission!
Listen to the silence, let it ring on.
Eyes, dark grey lenses frightened of the sun.
We would have a fine time living in the night.
Left to blind destruction, waiting for our sight
And we would go on as though nothing was wrong.
And hide from these days we remained all alone.
Staying in the same place, just staying out the time.
Touching from a distance, further all the time.
Well, I could call out when the going gets tough. The things that we've learnt are no longer enough. No language, just sound, is all we need now.
The Saudis are my buddies. $20 oil, bring it on. Texas can go to hell.
Very shalefish of them those arabs.
They’ve increased their rigs with 30% but their supply didn’t increase with 30% so this could well be a overestimation of their reserves.
Their output was on a decline for years while their rig count has soared. Their pumping up little pockets. Also, their costs just went up over 30% for a 35% drop in revenue, that doesn’t sound like a sound thing to do on the long run.
Maybe they’re mad that the UK sold their gold :)
ShrNfr-A reference to Kip Adotta tune?
We rigged some people.
Riggamortis will set in soon.
it's all going to shale
So sick of the f**king american stock market being so strong when it is obviously is so weak.
21st Century slogans (as allowed by TPTB)
Peace thru War
Prosperity thru Poverty
Strength thru Weakness
nominal retail stock prices are a farce and a fraud
@ 345 p/e does that mean Tesla stawk is a bit spendy ?
They are losing money with GAAP accounting ,and thats with only with a 1% warranty provision.
They are bleeding like a stuck pig in reality.
Tesla earnings will skyrocket after they rebrand as mobile crematoriums.
I'd be more focused on the much harder to dismiss fact that they plan to have a tiny fraction as much production as Ford in several years, and already their market cap is a large fraction of the size of Ford's.
if you are looking for 2015 energy capex ... check a milk carton
Nicely put.
Russia is supporting Iran and their nuclear goals, the Saudis hate the Iranians and do not trust them, so the Saudi's are sending an FU to Russia with love.
Wait..... ZH's last 47 articles on oil dropping were about it all being a demand issue......not a supply glut. So Tyler - which one is it?
didn't you hear? ... ebola wiped out half the world's population ...
BOTH...
Shale bailout needed
a shaleout? not with this president
All we need to approve another bailout, this time of the shale industry is for GS to buy a bunch of their junk bonds. Booom, bailout city!
So the saudi’s are not o ly depleting their oil reserves faster, but they’re also deploying their financial reserves to combat the US, their "ally"...
Let’s hope IS shows up on their borders so Ameca can return the favor by sitting on it’s ass, watching and eating popcorn as those saudi’s remind us what being a ally means.
They crippled the worlds economy with 140 oil and now they want to do the same thing all over once the us rig count is down to 60
Arabs bad, Mericans good. Mmmmkay!
'Food good, Fire bad'...
USA!!! USA!!! USA!!!
Saudi Arabia produces about 10% of world oil production and its oil production has been falling even with all those extra rigs:
Saudi Arabia Crude Oil Production is at a current level of 9.64M, down from 9.74M last month and down from 10.14M one year ago. This is a change of -1.03% from last month and -4.93% from one year ago.
https://ycharts.com/indicators/saudi_arabia_crude_oil_production
They need more rigs, because their best resevoirs are depleting - fast. Ghawar is way past its best days.
If you like your crude price, we can halve your crude price!
Aside from the usual rants and posturings, does anybody have more technical information on that rig-count curve?
There are two clearly different scenarios.....
1) peak-oil-ish: as wells deplete, SA is sinking more wells of less capacity each to keep the total flow up....a real sign of eventual production downturn
2) purely political: new wells are high flow comparable to old....sinking more is a price-war tactic.
Anybody have any real information to support either conjecture?
Auto-for a good primer on Saudi production check out the very readable"Twilight in the Desert" by Matt Simmons. Based on what I read there I would say 1) in your post above is very plausible. Either that, or they need more holes to flood the existig reservoirs.
Natty went to two and production soared.
Move along....
Would it be wrong to assume that a resolution to the Saudi 'problem' is only a phone call, or a carrier group, or a polonium cocktail away from successful behaviour modification...? Why then, the charade...?
The petrodollar.
The fed can start monetizing shale debt soon. U.S oil fields are just one more thing they will end up owning in exchange for paper promises.
following the logic they can heat their homes with earl from bakken, ha...
If it weren't for digital fiat they could heat their homes with FRNs.
from the front line (son on drilling crew over bakken), three holes and out.
finishing a lease. h and p(solid company owned by conaco/phil), extreme drilling laying off vp's already(father in law took serverance), big troubles...
https://www.dmr.nd.gov/oilgas/riglist.asp
to the good dr.
OR Earls hot drippen black dick up an ass for warmth...
Better the Fed buy real assets to help the real economy than just give TBTJ financial assets to frontrun and distort markets...
Let 'em front run.
Their oil bets have just sailed off a cliff "they're so far ahead."
if I am reading that chart right, the Saudis have 115 rigs, and the US has 1421 rigs?! Is that right??
If so, the uptick in the number of Saudi rigs is a small blip in comparison to the downtick in the number of US rigs, seems an unfair comparison to show it this way (different scales).
OTOH, the uptick for the US from 2009 to last year was very impressive.
Yes, around 60% of WORLWIDE rigs are operating in the US (or US plus Canada).
This gives you an idea of the violence of the ffort to squeeze more stuff out of the ground.
Current crisis IS primarily peak oil crisis, this is the prime driver.
And in fact one could say it started in 1971, at US peak, which by the way was the main reason of the first oil shock (1973) , much more than the "embargo" little song :
https://i0.wp.com/upload.wikimedia.org/wikipedia/commons/c/c5/US_Oil_Pro...
(together with dropping Bretton Woods in 1971 and associated $ devaluation)
..
Then you have second oil schock (Iranian revolution 1979), and soon after the debt bublles start to be inflated in all OECD countries (and growing ever since).
By the way regarding the first oil shock the story can be summarized as :
- end 1970 : US production peak, the energy crisis starts from there, with some heating fuel shortages for instance (some articles can be found on NYT archive on that), or :
http://upload.wikimedia.org/wikipedia/commons/c/c5/US_Oil_Production_and...
- Nixon name James Akins to go check what is going on.
- Akins goes around all US producers, saying this won't be communicated to the media, but needs to be known, national security question
- The results are bad : no additional capacity at all, production will only go down, the results are also presented to the OECD
- The reserves of Alaska, North Sea, Gulf of Mexico, are known at that time, but to be developed the barrel price needs to be higher
- In parallel this is also the period of "rebalance" between oil majors and countries on each barrel revenues (Ghadaffi being the first to push 55/50 for instance), and creation of national oil companies.
- there is also the dropping of B Woods in 71 and associated $ devaluation, also putting a "bullish" pressure on oil price.
- So to be able to start Alaska, GOM, North Sea, and have some "outside OPEC" market share, the barrel price needs to go up and this is also US diplomacy strategy
- For instance Akins, then US ambassador in Saudi Arabia, is the one talking about $4 or $5 a barrel in an OAPEC meeting in Algiers in 1972
- Yom Kippur starts during an OPEC meeting in Vienna, which was about barrel revenues percentages, and barrel price rise.
- The declaration of the embargo pushes the barrel up on the spots markets (that just have been set up)
- The oil majors revenues and stock value will also shoot up in the following years by the way.
- The embargo remains very limited (not from Iran, not from Iraq, towards a few countries)
- It remains fictive from Saudi Arabia towards the US : tankers kept on going from KSA, through Bahrain to make it more discrete, towards the US Army in Vietnam in particular.
- Akins is very clear about that in below documentary interviews (which unfortunately only exists in French and German to my knowledge, and interviews are voiced over) :
http://www.youtube.com/watch?feature=player_embedded&v=fQJ-0jAr3LQ
For instance after 24:10, where he says that two senators were starting having rather "strong voices" about "doing something", he asked the permission to tell them what was going on, got it, told them, they shat up and there was never any leak.
The "embargo story" was in fact very "practical", both for the US to "cover up" US peak towards US public opinion or western one in general, but also for major Arab producers to show "the Arab street" that they were doing something for the Palestinians.
In the end, clearly a wake up call that has been missed
Note : About Akins, for instance :
http://www.washingtonpost.com/wp-dyn/content/article/2010/07/26/AR201007...
Might help to overlay the WTI and Brent prices on the chart. Last time Saudi rigs count exploded was 2006/2007 BEFORE the oil price spike. Looks to me like they might be ramping for what will come as true supply and demand in physical markets establishes relative price levels... Contrarian, I know. But, FX is totally aligned against fundies right now. Should that correct, oil will be MUCH higher in USD terms.
I don't see how shale becomes unprofitable under a certain price.
I mean if you get 1 1/2 or 2 barrels of oil per each barrel you invest it has to be profitable at whatever price, right?
Or maybe it was never profitable in the first place?
I have laughed my ass off at the Saudi "break-even" oil level of $90. HA! Saudi's real cost of production is zero because they can just steal the nominal cost from their people.
And they do have cheap Azian slaves who work for a roof and food.
Saudi's are short oil, I'm sure of it now, through Shitigroup, that Barnhardt lady is right on this one.
Of course, with the number of rigs in the Middle East SURGING -- why not sell off global oil services companies that provide services to THOSE rigs?
if the Saudi's want to keep pumping and sell their oil for under $50 a barrel that's fine. our oil will still be in the ground. It will serve as an effective price cap. Oil is unlikely to go back above $100 a barrel. We just have to make sure they don't start buying up our oil companies and leases.
Why do I see this graph only now?
Get your facts straight...firstly Saudi output has been decling despite BBG left propaganda glut all the time stats....secondly OIL rig count
according to weekly Baker Huges stats is 1421 vs under 1400 a yr ago so its not down.....but this week it will be as another 70 rigs will be reduced......North
Dakota rig count which was reported today crashed to 2010 levels foreshadowing a very weak number coming out this friday......
NWO heads want to see shale/fracking fail so they encourage saudis to produce. This is supported by american elite also who will be moving to europe anyway. This oil slowdown will be the trigger for usd failure as it is backed by more derivitves than was US housing market pre 2007..
OAS puts anyone?
Include these charts maybe and see where the story goes.
http://peakoilbarrel.com/wp-content/uploads/2014/12/Kuwait.png
http://peakoilbarrel.com/wp-content/uploads/2014/12/Saudi-Arabia.png
http://peakoilbarrel.com/wp-content/uploads/2014/12/UAE.png
Are our Arab friends just struggling to keep production steady?
Only a moron thinks that shale is profitable. Without the cheap debt, state/federal tax incentives, the sector would not exist.
The only benefit is that they know they can tap it someday (disregarding the cost).
Same shit applies to the precious metals industry. Cheap debt and stupid governments = projects that never should have gone forward.
Only a moron thinks that shale is profitable. Without the cheap debt, state/federal tax incentives, the sector would not exist.
The only benefit is that they know they can tap it someday (disregarding the cost).
Same shit applies to the precious metals industry. Cheap debt and stupid governments = projects that never should have gone forward.
"And as T.Boone Pickens noted previously, the last time this happened (massive oversupply from Saudis), the US rig count was more than halved"
But as T. Boone Pickens failed to note previously, the last time this happened interest rates were north of 20%.
Kind of an important distinction to omit when comparing today's oil-patch to the 1980's oil-patch don't you think??
Try using your brain
There's a difference between the shale oil industry drowning, whether in excess supply or being waterboarded by Dick Cheney AND the current investors and owners of the shale oil industry taking a bath.
Our government could care less about investors losing their investment. Why else would they have done away with the 'uptick' rule?
In 2005, when global peak oil briefly hit the planet, the government needed suckers to establish the shale oil industry, which the government had no intention of promoting until it was needed when conventional oil became scarce. So by the end of 2009 it moved the price of oil up to $80 -$90 dollar level where shale oil was profitable.
Surveys of the best sites were made. Techniques for the most efficient methods of extracting shale were developed. And the most high tech equipment was invented.
In 2014 it was time to mothball all of these innovations for some rainy day in a decade or two when the supply of conventional oil, as predicted by Hubbert, started to cause some concern.
Exxon, Chevron, Phillips would gladly pick up the pieces dropped by the small investors until shale oil made its dramatic appearance in the in the last act.