US Shale Oil Production Rising Amid Strengthening Dollar
Despite OPEC’s desire to keep its stranglehold on the market, U.S. shale oil production looks to rise again amid a strengthening dollar.
Commerzbank analyst Carsten Fritsch notes the 23-week decline in U.S. drilling activity seemed to have stopped, while the pricing level needed to increase production is being aided by “the significantly appreciating U.S. dollar,” Reuters reports. Tuesday, the prices for Brent and West Texas Intermediate were both down 75 cents, coming in at $64.77 and $58.97 per barrel, respectively.
Goldman Sachs came to a similar conclusion, stating only one well was cut from the production rolls last week, adding producers would ramp production back up “given improved returns” were WTI to remain near $60/barrel. Meanwhile, Morgan Stanley says “the USD downward correction is complete,” making dollar-priced commodities like oil more expensive for those who buy with other currencies.
Increased production would also head-off the potential for a tighter oil market down the road, though with OPEC’s ongoing strategy to hold the line regarding its own production targets among the member states involved — a strategy not likely to change when the group meets in Vienna next month — the possibility for an ongoing oil glut remains.
Lorenzo on May 26, 2015
The shale operators have completed their shutdown of low volume producing wells and drilling in those areas. They're now producing from and preparing to drill in the high volume portions of the shale, and learned that spacing the horizontal wells closer together nearly doubles volume of crude produced. The Saudis have simply forced shale drillers to be more efficient. Continuous innovation as simple as spacing of wells, and other drilling techniques, may be what sinks the Saudi plan. If shale production that can't be exported replaces a big portion of the 9 million barrels we still import, those lost imports will be a glut on the world market.
Lou_BC on May 27, 2015
There are those that feel that Saudi Arabia's stand is aimed more at destabilizing "rogue" Eastern States and Russia. The fact that we haven't seen a wholesale shut down of Fracking or Canada's tar sands may prove that point but it is too early to tell. Another year or two of this will show who their targeted foes really are.
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