There are cracks beginning to appear in U.S. shale’s relentless growth story, and the indicators are all around us. We will run through some of the most glaring examples in a moment.
First, I want to briefly opine on the impact of this trend for the world oil market. It is priced currently for what I would call perfection. Iran and the U.S. are still only calling each other names. China and the U.S. are making jaw-jaw once again on the topic of a trade deal. As a result, oil has sagged down about $5.00 a barrel over the first couple of days this week. All in the face of large crude storage builds in the U.S. over the past month.
Meanwhile, the world market seems well supplied: everyone has all the oil they need and expects to maintain that situation for the foreseeable future. Everything is rosy. The linchpin in that warm glow of market satiety is the 15-20% YoY growth of U.S. production over the last decade. Every prognosticator on the planet, now refers to the U.S. as being the swing producer, able to fill all the pots and pans globally. The EIA is the worst of the lot. Their robust growth projections are contained in the graphic below.
But suppose the growth rate in U.S. shale can’t rise forever? What if shale production actually dropped? Now, let me be clear, no one, absolutely no one is forecasting that eventuality.
And, that’s what worries me. Think I’m a worry wart? Let’s take a trip back to September…