$45 Trip Wire? | Russell T. Rudy Energy LLC
According to a recent article in “World Oil”, the good news is that oil prices have rebounded somewhat. The bad news is that a sustained price of $45 per barrel could provide the incentive that shale operators need to unleash the “fraclog”. The fraclog is the inventory of drilled but uncompleted wells (DUC’s) that could represent up to 500,000 barrels of oil per day (bopd) of incremental production.
The price of oil has recently recovered from its February lows, largely due to speculation that the world- wide glut would ease as a result of falling U. S. production. Supply is still outpacing demand, but the surplus has been reduced by 280,000 bopd, kindling hopes that the market would reach equilibrium in the not too distant future.
We have seen this movie before. Last June when prices recovered to $60 per barrel, production surged, stockpiles swelled, and prices quickly cratered again. Some analyst fear déjà vu all over again. Angus Nicholson, an analyst at IG Ltd., warned “Once we start approaching $45 and above, the risk of a much sharper pullback starts to increase as a lot of shale becomes profitable again. It’ll bring more supply back into the market. This happened last year when a swathe of output hit the market after a price gain and subsequently lead to oil dropping to record lows.”
In April, U. S. output dropped below 9 million bopd, the lowest level since October 2014, and the oil rig count has dropped by more than 190, the least since 2009.
Not everyone sees $45 oil as leading to a new surge in domestic production. Fatih Birol, Executive Director of the International Energy Agency (IEA), still feels that the market will rebalance by the end of this year, or in 2017 at the latest. The IEA predicts that the global oversupply will almost vanish in the second half as shale production continues to decline.
To read the article in its entirety, please go to http://www.worldoil.com/news/2016/4/26/oils-recovery-inches-higher-as-fraclog-awaits-price-trigger .
Russell T. Rudy Energy, LLC buys oil, gas and mineral interests nationwide. Please call (800-880-0940), or write (info@rudyenergy.com ) to let us know if you agree, disagree or would just like to comment on this, or any of our posts.
