• 2 days Shell Oil Trading Head Steps Down After 29 Years
  • 2 days Higher Oil Prices Reduce North American Oil Bankruptcies
  • 2 days Statoil To Boost Exploration Drilling Offshore Norway In 2018
  • 2 days $1.6 Billion Canadian-US Hydropower Project Approved
  • 2 days Venezuela Officially In Default
  • 2 days Iran Prepares To Export LNG To Boost Trade Relations
  • 2 days Keystone Pipeline Leaks 5,000 Barrels Into Farmland
  • 2 days Saudi Oil Minister: Markets Will Not Rebalance By March
  • 3 days Obscure Dutch Firm Wins Venezuelan Oil Block As Debt Tensions Mount
  • 3 days Rosneft Announces Completion Of World’s Longest Well
  • 3 days Ecuador Won’t Ask Exemption From OPEC Oil Production Cuts
  • 3 days Norway’s $1 Trillion Wealth Fund Proposes To Ditch Oil Stocks
  • 3 days Ecuador Seeks To Clear Schlumberger Debt By End-November
  • 3 days Santos Admits It Rejected $7.2B Takeover Bid
  • 3 days U.S. Senate Panel Votes To Open Alaskan Refuge To Drilling
  • 4 days Africa’s Richest Woman Fired From Sonangol
  • 4 days Oil And Gas M&A Deal Appetite Highest Since 2013
  • 4 days Russian Hackers Target British Energy Industry
  • 4 days Venezuela Signs $3.15B Debt Restructuring Deal With Russia
  • 4 days DOJ: Protestors Interfering With Pipeline Construction Will Be Prosecuted
  • 4 days Lower Oil Prices Benefit European Refiners
  • 4 days World’s Biggest Private Equity Firm Raises $1 Billion To Invest In Oil
  • 5 days Oil Prices Tank After API Reports Strong Build In Crude Inventories
  • 5 days Iraq Oil Revenue Not Enough For Sustainable Development
  • 5 days Sudan In Talks With Foreign Oil Firms To Boost Crude Production
  • 5 days Shell: Four Oil Platforms Shut In Gulf Of Mexico After Fire
  • 5 days OPEC To Recruit New Members To Fight Market Imbalance
  • 5 days Green Groups Want Norway’s Arctic Oil Drilling Licenses Canceled
  • 5 days Venezuelan Oil Output Drops To Lowest In 28 Years
  • 6 days Shale Production Rises By 80,000 BPD In Latest EIA Forecasts
  • 6 days GE Considers Selling Baker Hughes Assets
  • 6 days Eni To Address Barents Sea Regulatory Breaches By Dec 11
  • 6 days Saudi Aramco To Invest $300 Billion In Upstream Projects
  • 6 days Aramco To List Shares In Hong Kong ‘For Sure’
  • 6 days BP CEO Sees Venezuela As Oil’s Wildcard
  • 6 days Iran Denies Involvement In Bahrain Oil Pipeline Blast
  • 9 days The Oil Rig Drilling 10 Miles Under The Sea
  • 9 days Baghdad Agrees To Ship Kirkuk Oil To Iran
  • 9 days Another Group Joins Niger Delta Avengers’ Ceasefire Boycott
  • 9 days Italy Looks To Phase Out Coal-Fired Electricity By 2025
Alt Text

OPEC's War Against Shale Is Far From Over

OPEC’s World Oil Outlook suggests…

Alt Text

U.S. Shale To Beat Saudi Production Growth

In its latest report, the…

Alt Text

“End Of Oil” Narratives Are Misleading

While the world makes dramatic…

Expect The Recent Oil Rally To End Badly If OPEC Doesn’t Cut

Expect The Recent Oil Rally To End Badly If OPEC Doesn’t Cut

The U.S. rig count dropped by 10 rigs this week after only falling by 3 last week. No doubt some analysts will say that this increase is somehow important and that a return to normal–i.e., high oil prices–is around the corner.

Well, don’t get too excited because the rig count that matters–the horizontal Bakken, Eagle Ford and Permian plays–only fell by 2 rigs after not falling last week. This is a normal fluctuation when oil is $100/barrel. Related: Market Fundamentals Make Oil Price Increase Unlikely

berm1min

Table 1. Rig count summary by play through May 29, 2015. Source: Baker Hughes & Labyrinth Consulting Services, Inc.

(click image to enlarge)

The rig count decline is effectively over as shown below in Figure 1.

berm2klein

Figure 1. Tight oil horizontal rig counts. Source: Baker Hughes & Labyrinth Consulting Services, Inc.

(click image to enlarge) Related: Top 5 Solar Markets in Asia

Production has fallen and will fall more but rig count is the wrong measure at this time. The real measure is capital given to U.S. tight oil companies. And there seems to be plenty of really stupid capital that thinks that investing now means buying low. Good luck with that once oil prices fall.

Figure 2. Bakken, Eagle Ford and Permian “Shale” tight oil production. Source: Drilling Info & Labyrinth Consulting Services, Inc.

(click image to enlarge)

There have been a steady stream of articles championing the ingenuity of U.S. tight oil producers for figuring out how to maintain production with fewer rigs. It doesn’t strike me as ingenious to produce more oil at low prices that ensure losing money. Related: Investors Turning Away From Green Energy

OPEC will meet on Friday (June 5, 2015) and most doubt that a production cut will result. If that is the outcome, expect the recent rally in oil prices to end badly. If producers cared about their investors and shareholders, they would be slashing production by shutting in wells. That might help oil prices rebound sooner and then, they could sell the oil at a profit instead of losing money while celebrating their own ingenuity.

By Art Berman for Oilprice.com

More Top Reads From Oilprice.com:




Back to homepage


Leave a comment
  • Lenb on June 01 2015 said:
    agree with most of what u said except for main point...if there exists little expectation for an opec cut why would the meeting matter at all unless they raise output? To me thats more logical.
  • Brian B. on June 02 2015 said:
    Len. I agree with you. The fact that OPEC is leaving production alone is already mostly built into the current price. Nearly everyone who has been paying attention to the current price drop in oil knows full well that OPEC is not going to cut production. When it's announced, it won't even hardly be a "blip" on the radar screen. Now, on the other hand, if they announce a cut, then there will be sheer pandemonium to the upside.

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News