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Saudis Declare Victory Over Shale Just As US Oil Production Jumps, Bakken Wells Hit Record

Tyler Durden's picture




 

Yesterday, the FT reported that less than a year after Saudi Arabia launched its attack on "marginal" US shale producers which has sent the price of WTI crashing by more than 50% from $100 before recouping a substantial portion of the losses and last trading around $60, the Kingdom gloated in declaring victory over US shale. To wit:

Saudi Arabia says its strategy of squeezing high-cost rivals such as US shale producers is succeeding, as the world’s largest crude exporter seeks to reassert itself as the dominant force in the global oil market.

 

The kingdom’s production rose to a record high of 10.3m barrels a day in April and there is no sign that it plans to reverse its policy at next month’s meeting of Opec, the producers’ cartel, in Vienna. 

 

There is no doubt about it, the price fall of the last several months has deterred investors away from expensive oil including US shale, deep offshore and heavy oils,” a Saudi official told the Financial Times in Riyadh, giving a rare insight into the kingdom’s thinking on oil strategy.

Which is great, but there are two problems.

First, any time someone say "there is no doubt about it", or "unambiguously this or that", it is a lie.

Second, Saudi Arabia is dead wrong.

For one thing, as the following Deallogic chart shows, investors are itching to jump on what has become an M&A bonanza in the form of a record amount and number of M&A deals YTD, not only globally but in the US as well.

This excludes the surge in new junk bond and equity issuance in recent weeks as yield and BTFD-starved gamblers with other people's money couldn't wait long enough to BTFD and rushed into the most beaten down sector in 2015.

But what's worse for the Saudis is that while the Fed's zero-cost money policy means US shale can weather out almost any collapse in oil prices is a report from the WSJ that "U.S. shale-oil companies say they are ready to bring rigs back into service, setting up the first big test of their ability to quickly react to rising crude prices."

Last week, EOG Resources Inc. said it would ramp up output if U.S. prices hold at recent levels, while Occidental Petroleum Corp. boosted planned production for the year. Other drillers said they would open the taps if U.S. benchmark West Texas Intermediate reaches $70 a barrel. WTI settled at $60.50 Wednesday, while global benchmark Brent settled at $66.81.

 

An increase in U.S. production, coupled with rising output by suppliers such as Russia and Brazil, could put a cap on the 40% rally in crude prices since March and even push them lower later in the year, some analysts say.

 

“U.S. supply could quickly rebound in response to the recent recovery in prices,” said Tom Pugh, a commodities economist at Capital Economics. “Based on the historical relationship with prices, the fall in the number of drilling rigs already looks overdone, and activity is likely to rebound over the next few months.”

And so the oil cycle will repeat as what has been a relentless buying spree for the past two months in oil, becomes a selling scramble, as the Saudis get a second chance at being right in crushing US shale producers.

In the meantime, however, they have a long way to go. Exhibit A: the number of oil wells in the Bakken just hit a new all time high:

 

And Exhibit B: after declining for two months, Bakken oil production rose in March for the first time in 2015. Considering the price of oil rose further in April, Bakken daily oil may well be at record highs as of this moment!

 

The commentary from North Dakota was simply priceless:

North Dakota posted a surprising jump in oil and natural gas output in March, as producers leaned on newer technologies and processes to offset a slump in commodity prices.

Many industry observers had expected output to fall for the third consecutive month in the wake of a more than 50 percent drop in oil prices since last summer.

 

"We scratched our heads in the month of March" as to why production increased, Lynn Helms, director of the state's Department of Mineral Resources, said during a conference call with reporters.

 

Yet the increase shows producers' willingness to wring efficiencies out of existing operations, as well as their attempt to maintain production, even at depressed prices, to safeguard relationships with service providers ahead of any future spike in crude oil prices.

 

About 189 North Dakota wells were completed in March at locations owned by Exxon Mobil Corp, Hess Corp, Continental Resources Inc and ConocoPhillips, reversing a trend in which most producers delayed completions.

 

"These four appear to be more in tune with having normal cash flow, and continue to complete their wells in a more aggressive manner," Helms said.

And the rest will be ok too for the simple reason that what the US shale space is missing in organic cash flow, it can promptly compensate for with yield chasers' desperation to generate a 10% return on other people's money by investing in junk bonds that have zero chance of ever being repaid.

Real end result: Saudis 0 - Shale 1, if only for the next few months. If and when oil once again crashes back to where the Saudis need it to drop if they truly want to destroy the US shale industry, somewhere around $20/barrel, then the final outcome will be very different.

 

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Thu, 05/14/2015 - 11:16 | 6093199 Bioscale
Bioscale's picture

What a theatre.

Thu, 05/14/2015 - 11:42 | 6093307 KnuckleDragger-X
KnuckleDragger-X's picture

The Saudi's have been the tail wagging the dog for a long time. but their power is waning and the rest of OPEC are doing their own thing. A five dollar rise in WTI and the optimists will start dragging rigs out and punching holes again......

Thu, 05/14/2015 - 11:56 | 6093376 KnuckleDragger-X
KnuckleDragger-X's picture

Absolutely true, junk bond interest is lower than standard rates were 20 years ago and with all the magic packaging available we will see optimists jump back in if given a chance....

Thu, 05/14/2015 - 13:26 | 6093700 0b1knob
0b1knob's picture

This is a three way cluster phuck between the US, Russia and the Saudis.

Its too soon to say who is getting it in the butt and who is getting (or recieving) a reach around.   I don't see any way this works out well for Putin however.

Thu, 05/14/2015 - 15:44 | 6094236 DutchR
DutchR's picture

Hairless apes on a Blue Marble to blind to see the future

 

The way this is going

 

Bye bye apes

 

Earth roll's another dice

Sat, 05/16/2015 - 10:22 | 6100254 oudinot
oudinot's picture

"I don't see how this works out for Putin."

Well then,  you don't understand basic economics.  The Ruble has debalued; thus Russia can pay less for labour and materiel in Russian thereby lowering energy production costs.

Thu, 05/14/2015 - 12:00 | 6093393 Pure Evil
Pure Evil's picture

Who cares. The Saudi's can pump oil until they're blue in the face. The real bottleneck is the refineries. At what capacity are the refineries? Last time I was in Jersey they had already shut down two refineries around Philly. There was talk of a major airline purchasing one to produce jet fuel, but I left the are before anything was finalized. Last I heard was that refineries are at 95% capacity.

Thu, 05/14/2015 - 15:47 | 6094251 DutchR
DutchR's picture

I think Ghawar is end of line

 

 

Thu, 05/14/2015 - 15:01 | 6094050 sun tzu
sun tzu's picture

There's already 5000 wells drilled but uncompleted. It wouldn't take long to get them online and increasing production by 500K bpd. These frackers are starved for cash and $65-70 will definitely get those wells online. This fall will be a disaster for the oil industry.

Thu, 05/14/2015 - 16:26 | 6094423 Magooo
Magooo's picture

When has OPEC ever had any power?

 

In case you hadn't noticed whenever a major oil producing nation refused to kiss the ring e.g. Saddam, Gaddafi, Chavez, Putin... 

 

Look what happened.

 

As if some tin pot fuckhead in a robe is going to dictate terms to America.   You are off your rocker mate

Thu, 05/14/2015 - 11:16 | 6093200 Budnacho
Budnacho's picture

"Nice Kingdom ya got there....would be a shame if something was to happen to it....."

Thu, 05/14/2015 - 11:36 | 6093290 BlowsAgainstthe...
BlowsAgainsttheEmpire's picture

Not gonna happen . . . their new best friend is Israel.  Keep that on the QT.

Thu, 05/14/2015 - 11:22 | 6093220 corporatewhore
corporatewhore's picture

Mission Accomplished!

Thu, 05/14/2015 - 11:27 | 6093242 MFL8240
MFL8240's picture

They need to thank their buddy Obozo, he is a traitor!!

Thu, 05/14/2015 - 11:27 | 6093247 Ban KKiller
Ban KKiller's picture

SA? Screw them anytime we can. As if...

SA is a shit hole of a country. Unless you are one of the hundreds of princes...

Thu, 05/14/2015 - 11:28 | 6093256 pachanguero
pachanguero's picture

Nuke them and the jews too. Problem solved!

Thu, 05/14/2015 - 11:28 | 6093258 falak pema
falak pema's picture

Haha, cheap oil vs cheap money; lots of it.

Who is gonna win ?

According to Lawof Physics, its the Oil producer making real stuff.

According to the financial cabal, not so sure; the US has the biggest financial gun thanks to FED printer and it can make blood out of fracked oil.

Some awesome game now raging.

Thu, 05/14/2015 - 11:34 | 6093279 oklaboy
oklaboy's picture

this is gonna be fun......

Thu, 05/14/2015 - 11:40 | 6093303 Niall Of The Ni...
Niall Of The Nine Hostages's picture

Even before this Saudi was on track to run out of oil in 15 years. 

Sorry, lads. Only so long you're going to be able to prop up your pals on Wall Street and DC and screw Christians from Edmonton to Ekaterinburg out of the hire of which they are worthy. You've bought your fellow parasites a decade, max.

When the oil's gone and you can't buy friends in high places any more, maybe the liberated nations of the Eurasian Union will finally be able to do something about their arselifter problem while Israel finally takes her place among the nations as hegemon of the Near East. I hope to be there to see it.

Thu, 05/14/2015 - 11:43 | 6093314 Meremortal
Meremortal's picture

Saudis have screwed the pooch.

It's just a matter of time now. 

Thank you, George Mitchell, old friend!

 

Thu, 05/14/2015 - 11:47 | 6093337 Mike Honcho
Mike Honcho's picture

Just because the glass slipper hasn't dropped doesn't mean they are wrong.  A group of investing baboons trying to make easy money any way they can will have its consequences.

Thu, 05/14/2015 - 11:49 | 6093345 SweetDoug
SweetDoug's picture

'

'But why aren't gas prices cheap?

 

•J•
V-V

Thu, 05/14/2015 - 11:51 | 6093353 roadhazard
roadhazard's picture

Is it, "Peak Oil" yet.

Thu, 05/14/2015 - 15:49 | 6094263 DutchR
DutchR's picture

rear view mirror on conventional oil

Thu, 05/14/2015 - 11:53 | 6093361 new game
new game's picture

https://www.dmr.nd.gov/oilgas/riglist.asp

sumtin don't jive with what i just read...

Thu, 05/14/2015 - 11:54 | 6093366 Frank N. Beans
Frank N. Beans's picture

yeah I don't get this.  Gas prices high again, oil higher, wells increasing.  Was ZH analysis wrong about sub$40 oil by now? 

Thu, 05/14/2015 - 12:07 | 6093420 BoPeople
BoPeople's picture

I think part of what we do not get is the financialization of oil as a commodity. Who holds the risk of oil price? It is investors in futures/derivatives. As the futures/derivatives contracts run out, more pressure is put on the producers.

Thu, 05/14/2015 - 12:12 | 6093443 Space Animatoltipap
Space Animatoltipap's picture

Exactly, it's the financing story behind these very expensive wells. These fanatics are fighting against time.

Thu, 05/14/2015 - 12:32 | 6093505 herman55
herman55's picture

As i sit here at noon Thursday May 14th, i can literally see the surveyors only a mile away staking out another drill pad site here in the Bakken..................i honestly do not know where this is all going.

Thu, 05/14/2015 - 12:41 | 6093507 MEFOBILLS
MEFOBILLS's picture

All economics are:  Earth + Machine + Labor. 

Labor is a smaller and smaller fraction with advent of high technology.

Oil is a gift of earth, and it is monetized for its extraction costs + finance costs.  Therefore, the monetization doesn’t actually equal its real economic value.  Oil's price is how much it costs to be extracted from the ground.

Oil energy fuels machines; machines then use other earth (metals, chemicals, etc.) to then multiply human labor; human labor + machine will produce goods and services at a high rate.

The true value of Oil is under-represented by its price.  Oils true price is related to its energy content and useful long chain molecules (plastic, chemicals, medicines, etc.)   

It would be much more sensible to sequester American oil in the ground, to be saved for futurity.  In the present, it would easy enough to ramp up labor + machine + energy to build out a nation of new insulated homes.  New factories could be built for making solar cells, which are now becoming cost competitive.

But, of course, America cannot have an industrial policy.  America is now completely run by bankers and markets, and hence civilizations “planning” void has been usurped by private money power.

  America must fail: markets and money are not God; markets and money are not intelligent; markets are passions of mobs reacting to signals from prices and money; today’s money is private banker credit which is a demonstrably false fraudulent system.

Purchasing power is distributed by the agency of wages.  Unearned increment of association is the improved productivity that is accruing to humanity outside of wages.  Oligarchs who claim ownership of the money, are taking this unearned increment for themselves. 

Ironically, money that is loaned into existence isn’t really owned by those who do the loaning.  When people go to a bank, they create the money upon their signature authority.

So, there are at least six hypnosis factors in action here:    1) The price of oil doesn’t reflect its true economic value 2) Money is usuriously created from nothing as credit by private banks; said banks which then pretend to own this money. 3) Markets use this credit money to make false price signals.  5)  Wages cannot distribute appropriate purchasing power from increment of association, thus people become disenfranchised from their birthright.  Eventually when robots are making everything and one person owns the world, this mechanism will become more obvious.  6) Oligarchy forms and high civilization becomes impossible.

The bulk of humanity is reduced to that of an animal, looking for scraps, even though he could be highly productive.  Humanity becomes teeth and claw fighting over what seems to be diminishing scraps, even though earth has bounty.

 

Our situation can be reduced to its essence – malformed money power.  Private Banks should NOT create and own the credit of a nation.  

Thu, 05/14/2015 - 13:28 | 6093701 oudinot
oudinot's picture

"6) Oligarchy forms and high civilization becomes impossible."

That is complete bullshit.  Athens was an oligarchy in the times of Plato, Aristotle, Euripides.

Renaissance Florence was an oligarchy.

Your point is 100% wrongo.

Thu, 05/14/2015 - 16:25 | 6094402 DutchR
DutchR's picture

. comment retracted

 

Thu, 05/14/2015 - 12:57 | 6093613 Gusher
Gusher's picture

I have been saying the same for years and was mocked for it by the naysayers who said doom was just around the corner.  ND oil is here to stay.  $20 would be a problem but if it happens it will be short lived.

Thu, 05/14/2015 - 13:30 | 6093719 KansasCrude
KansasCrude's picture

Oh B.S.  the charts show oil production has already peaked more wells hells yes.  Got to drill like a mofo due to the depletion rates.  Already losing that game as the CHARTS SHOW!... Production peaked in 2014 or early 2015.  Yawn the B.S. game on the Bakken production is over.  The field is in terminal decline.

Thu, 05/14/2015 - 13:58 | 6093838 Jack Burton
Jack Burton's picture
Bakken Wells Hit Record

Yes, and why? Because drillers are billions of dollars in debt and they are playing for time, getting as much oil as possible out of the ground to service debt and stay alive. They have only limited time left before production tanks as fewer wells are drilled and producing wells crash in output. A new well has a short peak. And guess what, the first few years of fracking, they drilled the very best producing shale plays, it's all down hill from here.

To say that

Bakken Wells Hit Record

is meaningless without context!

Sat, 05/16/2015 - 09:48 | 6100191 oudinot
oudinot's picture

Well said, Jack.

You are 100% correct.

Thu, 05/14/2015 - 13:59 | 6093844 Iam Yue2
Iam Yue2's picture

Only Chinese Shale to worry about then;

http://en.people.cn/n/2015/0514/c98649-8892282.html

 

Oh, and Iran ......

 

 

Thu, 05/14/2015 - 14:46 | 6093992 Chad_the_short_...
Chad_the_short_seller's picture

Yawn, wake me up in 18 months when oil is $140 a barrel.

Thu, 05/14/2015 - 14:57 | 6094008 MEFOBILLS
MEFOBILLS's picture

reply to oudinot:

 

 

The dark ages were an oligarchy. The land became owned by a select few.  Gold as money was hidden in vaults - only liberated after fourth crusade.

Greece became an oligarchy as Jews put them into silver debts.  The intangible ledge clay ledger grew with usury and there was never enough physical silver in the supply to pay said debts.  (Silver mines were controlled.)

Solon's reforms were because Greece had become enslaved to debt Oligarchs.  Farmers were sold into slavery, so food did not get to Athens.

Rome turned to become an Oligarchy after the second Punic war, eventually leading to its destruction.  Rome acquired eastern money means after second Punic war.

Carthage was a semitic speaking oligarchy who used ships to interdict and pirate trade.  Carthage enslaved their natives.

Aristotle noted the pattern of oligarchy (four types) as it happened in his lifetime, and probably why he was so astute on money.  

Oligarchies run for private gain of a few are not renaissance.  A King or Queen who pledges themselves to the population is a post oligarchy phase.  Kings or Queens do return power to the people in order to gain taxes and have his/her people be used as soldiers.  

A king cannot have soldiers if his soldiers are in debt.  Win the war for me so you can go back to being a debt serf.  It doesn't happen.

 

So who is the bull-shitter?  Oligarchies are not a high form of civilization, they are destructive phase.  There is no need for Oligarchies anymore - we modern humans should be smarter and not fall into the same repeating trap.

Sat, 05/16/2015 - 13:49 | 6100227 oudinot
oudinot's picture

Reply to MEFOBILL

The dark ages were, in the western world, a fuedal system with a King.  The people needed a a strong man (KIng) to harbour them in the castle keep and fight off the Saracens or the Vikings. Nothing to do with Jews.

Solon was a Spartan, a Lacedemonian, not an Athenian.  The Athenians, in the Periclean age (460-430 BC) , they had their own silver mines which they mined, without Jews, and developed an artistic, cultural height which has never been surpassed.  They were an Oligarchy; Sparta had two Kings, to compare the two shows your complete ignorance of ancient Greece.

Rome, actually, became more democratic after defeating Hannibal in the second Punic war.  Because of all the deaths from the stuggle, peasants, the people, had more political power as labour was extremely scarce. Rome , when a republic, was always Oligarchic as the Senate remained the seat of power.  Rome did not get 'destructed' as you inelegantly put it, till 476 AD , over six centuries later.  In fact one could argue that Rome existed for 1,600 years after you said it 'destructed' as Constantinople, Istanbul (the Eastern Roman Empire) did not fall to the Ottomans till 1453 AD.

Renaissiance Florence , as well as Periclean Athens, were Oligarchies which possessed the highest culture; there is no denying this fact which leaves your tortured argument in intellectual tatters.

Obviously, you have no idea of history whatsoever, and your anti Jewish fever blinds you to properly interpret these long ago events; why don't you try to read real history first, then attmept to pontificate later.

If you want to use your anti semiticism where you would have a glimmer of truth, look to the Italian Jewish bankers (Genoa, Siena) who loaned money to Spanish, French and English Kings to fight their wars in the 13th,14th , 15th centuries.  Eventually, these Kings defaulted on the Jewish loans and exiled all the Jews from their Kingdoms.

Thu, 05/14/2015 - 14:52 | 6094017 riddlezmeth1s
riddlezmeth1s's picture

Problem with the Bakken line is that they probably won't get their pipeline through Iowa after it has recently came to light that the corporate minions have been enticing the landowners with teenage prostitutes: http://www.radioiowa.com/2015/05/11/se-ia-landowner-accuses-pipeline-age... and a new law which will restrict the use of eminent domain http://www.desmoinesregister.com/story/news/politics/2015/05/05/iowa-ene...

Thu, 05/14/2015 - 14:54 | 6094025 RMolineaux
RMolineaux's picture

This looks like a lot of happy talk from promoters.  If there has been an increase of M&A activity, that only shows that a lot of frackers are losing money.  The big oil companies are picking up a lot of broke frackers.  They will continue to operate the wells at a loss to drive out the rest of the little guys.  They have been doing the same thing with natural gas for several years now.  It has become a schoolyard wrestling match to see if the Saudis will "give" (because of budgetary pressure) before the major oil companies.   

Thu, 05/14/2015 - 22:30 | 6095779 Hohum
Hohum's picture

Right on the Bakken.  All it took to eclipse January by a hair was 364 additional wells.  Certainly, that can go on forever.

Sat, 05/16/2015 - 22:44 | 6101989 VangelV
VangelV's picture

Normal cash flow?  Given the fact that the 10-K filings were showing shale producers having large funding gaps at $80 oil how can $60 oil produce 'normal cash flow' particularly when we see that the newer wells will have lower ultimate returns since they are away from the sweet spots that are nearly tapped out?  

The shale story was a Ponzi scheme.  Why are people having such a hard time understanding that?

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