Can The Permian Push Oil Prices Down To $40?

Tyler Durden's picture

Authored by Irina Slav via OilPrice.com,

Two analyst firms have revised upwards their production growth forecasts for the Permian, expecting oil output there to be 300,000 bpd higher by the end of this year. The firms are none other than Wood Mackenzie, whose analysts expect 300,000 bpd more in Permian output by end-2017—a 200,000-bpd increase to its year-end forecast—and Rystad, which sees the cumulative increase for June-December at 300,000 bpd.

That’s the kind of consensus market players like to see, especially when it comes a couple of days after reports that investors are pulling out from the Permian after Pioneer Resources reported the share of natural gas and gas liquids in its overall output has been rising at the expense of oil. Investors love their crude, after all, and are much less excited about gas.

Amid the worry, which some say is not as widespread as it may seem, the upbeat forecasts of these analysts were certainly welcome. Indeed, EIA data shows that the Permian continues to be the leader among the shale plays in terms of production growth. This month, output there is seen to rise by 64,000 bpd from July, to 2.535 million bpd. To compare, the second-fastest output growth is forecast for Eagle Ford, at a distant 27,000 bpd this month. In fact, the Permian should account for over half of the total U.S. shale oil output increase in August from July. The figure stands at 113,000 bpd. Related: Oil Rises, But Saudis Face Daunting Dilemma

Going back three months in EIA’s drilling productivity reports reveals that the rate of production growth in the Permian was within the range of 65,000 bpd (in June) to 76,000 bpd (in April). In the first quarter, production growth rose from 53,000 bpd in January to 79,000 bpd in March. One thing seems very obvious: the monthly growth rates so far this year are lower than 100,000 bpd, let alone the 300,000 bpd Rystad and Wood Mac forecast.

That’s because so far this year drillers have rushed to add rigs, but the output from these new rigs takes a few months to show up on production reports. This means that over the next four to five months, if the analysts are right, we’re likely to see a pretty sharp increase in Permian oil output. This, in turn, could spell US$40 for West Texas Intermediate.

An analysis by Oil & Gas Financial Journal’s Mikaila Adams quotes some energy independents’ spending plans, which suggest this year’s push will continue as initially planned in the happy days following OPEC’s decision to start cutting, but next year many independents are likely to take it down a notch, anticipating a potential price fall to US$40-45. In other words, these companies are preparing for the consequences of their output boost. Some, and no small fish, have already announced capex cuts for this year, including Anadarko and Continental. The total capex cut for shale producers for the year has come in at US$1.2 billion.

Continental’s Harold Hamm warned his peers that too aggressive an output increase would drive prices into the ground. The temptation, however, must have been irresistible, what with all the debt to pay, so shale operators continue to ramp up production. The latest news suggests they are being more careful than last time, however. These plans to cut spending and reduce rigs counts in case prices start falling below the minimum comfortable level indicate that shale producers are wary of being caught by surprise again, as they were in 2014. Perhaps, if the Permian production growth estimates prove true, we might get to see exactly how nimble shale operators can be when push comes to shove.

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Occident Mortal's picture

If this month is August then are there is September, October, November and December until year end.

That's 4 months.

300,000 bopd / 4 months = 75,000 bopd / month

Author is a retard.

Manthong's picture

 

It will not be the Permian…

..it will be the exodus south and many staying home for a relaxing vacation.in the back yard.

The Cooler King's picture

Permian's 'MOJO' all depends on whether or not Boobie Miles blows his knee out.

 

If that happens, you need to bet on DALLAS CARTER

Bill of Rights's picture

Fleas Found to Carry the Plague in at Least 2 Arizona Counties

 

https://www.cnbc.com/2017/08/13/arizona-fleas-carrying-plague-health-departments-warn.html

 

 

Fleas have been found to carry the plague in at least two Arizona counties, a publication reported.

Fleas carrying the disease were detected most recently in Navajo county, according to a report by ABC News. The first case was first reported a week ago when officials in Coconino County found infected fleas on local prairie dogs.

Navajo county warned residents to be careful while hiking or in areas where there may be dead animals or fleas present, ABC said.

“Navajo County Health Department is urging the public to take precautions to reduce their risk of exposure to this serious disease, which can be present in fleas, rodents, rabbits and predators that feed upon these animals,” the Navajo County Health Department said, according to ABCNews. “The disease can be transmitted to humans and other animals by the bite of an infected flea or by direct contact with an infected animal.”

MrSteve's picture

I can't imagine who would down vote you for posting news at least 17 years out of date. See this October 2000 story on plague and prairie dogs. On the other hand, thanks for posting a public health warning for anyone not knowing what goes on in prairie dog town.

www.washingtonpost.com/wp-srv/aponline/20001001/aponline120126_000.htm

Cardinal Fang's picture

I think there is some kind of bot doing the downvoting as I have seen an increase in -1 across the board on posts that are totally non-controversial.

gregga777's picture

The weakening of the Sun's magnetic field, in this and possibly future Solar Cycles, and the century-long weakening of the Earth's magnetic field is allowing more Cosmic Rays to reach the Earth and to penetrate to lower latitudes than normally seen. Increased Cosmic Ray penetrations in the past may have produced more mutations in diseases like the plague in high, desert areas and have been correlated with past plague pandemics such as the late Roman Empire 6th Century C. E. (around the years 530-550's.

The Cooler King's picture

So basically, you're saying that the 'Justinian Dynasty' emperors were the Al Gore of their time and creating a mass scare about the possibility of 'high desert' plague outbreaks from a throne in Constantinople (which is at SEA LEVEL).

 

Once again, this is why I come to ZH ~ for the COMEDY!

gregga777's picture

KSA (Kingdom of Saudi Arabia) Vision 2030 to diversify Saudi Arabia from oil production to sand, camels and goats and tourism. Not necessarily in that order.

Tourism to Saudi Arabia? ROTFLMAO (rolling on the floor laughing my a** off).

Greenspazm's picture

Public beheadings as a tourist attraction. Book now for 35% discount. No refunds.

gregga777's picture

Careful. You might end up being the main attraction!

Greenspazm's picture

"Irina Slav" - that has to be phony. How about "Liars Vain", or "Naval Iris"

gregga777's picture

Should be Irina Slava if that was her real last name. Glory Irina!

Greenspazm's picture

An improvement, that gives you "Saliva Iran"  or "Anal Via Sir"

Last of the Middle Class's picture

Saudi knew 20 years ago the party wasn't going to last forever. At one point they wanted to tie US investment into alternative income streams to the sale of oil at it's peak. I guess after you have a couple of 24k gold lambo's you kind of lose interest in what happens after the current oil monopoly. Shit they could have put up solar panels and developed a grid from hell if they had been paying attention, but NOOOOOOO, they wanted more gold Lambo's.

Publicus's picture

Oil is the cheapest renewable resource we got, the price proves that it is a renewable.

Turin Turambar's picture

Oil price will be whatever the jawboners want it to be.  right now, they like it in the $45-50 range, close to 50's.  Oil price is manipulated almost as blatantly as gold.  SMH

VangelV's picture

If prices go down, the shale companies go bust and stop trying to grow production by destroying capital.  Of course, we can have prices go down.  But if they do, that only sets the stage for the destruction of the economy as investment in conventional oil production goes down and prices explode once the oil markets have bottomed.  The author needs to start living in the real world.  

Sapere aude's picture

Irina. Don't call us, we'll call you

 

Unintelligible figures and a complete lack of knowledge of the oil industry are not good qualities for oil ANALysts.

The question should be how long will the Fed keep buying bonds of bankrupt oil companies, many in the Permian, who continue to shout about the low costs necessary to make a profit, yet still spend $1.50 for every $1 they get back.

What you should be doing is checking the actual accounts of these companies. Then you will find there is nothing clever about ripping off stockholders or tapping up investors for more money when certain CEO's talk the talk, but the accounts show they cannot walk the walk.

 

Anyone, and I repeat anyone can spend $75 (and that does not include all costs) on producing a barrel of oil, and sell it for under $50....but is it sustainable, is it profitable. OF COURSE NOT.

These companies have sold assets, reduced capex elsewhere, cut dividends, and are relying on Fed. buying junk bonds to continue, because politically its not about free trade, its not about the fundamental economics of producing oil at 50% above what you can get...its simply about weaponising oil to artificially lower the price of oil, just like the ridiculous habit of counting inventory to mark oil prices down, when those inventories are artificially increased in the first place by the same people then complaining about increased inventory.

 

You really couldn't make this stuff up.

 

Sapere aude's picture

Incidentally the figures are rigged too.

 

The stats suggest an increasing producing from a reducing number of rigs, and by association wells...IMPOSSIBLE.

This would assume not only there is no decline rate, but that the production from wells increases as time goes on....BONKERS.

The Permian like all shales declines rapidly, so the minute you stop drilling or reduce rigs, the production has to fall so we know the figures on production are being massaged.

Worse than that we also know from past experience that sweet spots are drilled first, so gradually the productivity of new wells declines anyway because they are not drilled on the sweet spots, but then because of saturation drilling a requirement due to Red Queen Syndrome, overall well productivity declines even further.

So producing two lines showing production going up and rigs going down, is just another piece of dodgy paper trying to influence a commodity.

If this oil was so plentiful do you really think we would have Donald talking about military intervention in Venezuala, a country with the largest oil reserves?

Do we really think they would have allowed iran to sell its oil on the open market?

Do we really think we would be bothering with loss making shale, drilling at any cost to produce oil below cost?

Do we really the Iraq war would have taken place, when one of the reasons for that war was not WMD's, but because Saddam a former ally had decided to end oil payment in dollars.

Do we really think the overthrow of Gaddafi would have taken place, if it wasn't because of oil, when again coincidentally or not Gaddafi announced he would no longer be trading oil in dollars?

Russia and China followed suit, but too big to take on in a conventional manner, so oil price was weaponised, aided by every bit of propaganda possible to give the public pronouncement of an oil glut, to weaponise oil to bring it artificially low pricing, at any cost. Why else would shale operators have been allowed to run up so much debt, funded by Feds buying their bonds?

 

If oil was so plentiful, you wouldn't bother driling in shale in the first place, or offshore, or in frozen environments, or especiallly from tar sands the most environmentally damaging of the lot.