InvestingDaily.com

Account Information

  • My Account

    Manage all your subscriptions, update your address, email preferences and change your password.

  • Help Center

    Get answers to common service questions, ask the analyst or contact our customer service department.

  • My Stock Talk Profile

    Update your stock talk name and/or picture.



Close
FEATURED STRATEGY

$1,230 in Instant Income?

$1,230 in Instant Income?Our top income expert recently pulled the wraps off his breakthrough moneymaking technique. And he proved beyond a shadow of a doubt how you can use it to generate instant cash payouts of up to $1,230 (or more). Over and over again. But then he took things a big step further and guaranteed you can make $1 million by following his program. And the second he did, our phones went nuts! Space is limited — get the details here.

 

 

A Brief History Of The Shale Oil Boom

By Robert Rapier on April 13, 2017

In my previous article – Syria’s Impact On Oil Prices – I discussed one of the questions I was frequently asked at last week’s Wealth Summit. To summarize, there will not be much impact on crude oil supplies, but the market fears uncertainty.

But I also talked about Black Swans in the oil industry, and how they tend to rapidly drive oil prices higher. One exception to this rule was the U.S. shale oil boom, which very few people saw coming a decade ago. The net result was that this boom added about 6 million barrels per day (BPD) of U.S. oil production to the markets from 2008 to 2015. This rapid production growth eventually outran demand growth, and that began to manifest itself as growing crude oil inventories around the globe. I captured this in one of my presentation slides:

The saving grace for the oil market up until 2014 was that crude oil demand was growing at an average of around 1.3 million BPD, so in the early stages of the shale boom, the new production merely helped meet growing demand. But then the U.S. added another 1.2 million BPD of supply in 2013, and a record 1.7 million BPD in 2014.

Starting in early 2014, the market became oversupplied for nearly two years, leading to a significant inventory build (shown by the left circle in the slide). I could see the handwriting on the wall, so one of my 2014 predictions was that crude oil prices would fall.  It took another six months after I made that prediction, but surging inventories finally dropped crude prices below $100/bbl. As the price dropped – and inventories continued to swell – OPEC made a decision to defend market share against the upstart shale producers. In 2015 the U.S. added another one million BPD to the market, but OPEC responded by adding its own 1.6 million BPD contribution. 

From 2014 to 2015, about three million BPD was added to a global market that was only growing demand at about half that rate. Record global inventories resulted, and the price of crude oil fell all the way into the $20s. Low oil prices put a lot of shale oil producers out of business, but it also made many more efficient. They got better at squeezing oil from those wells. They squeezed suppliers and optimized drilling techniques. Breakeven costs fell.

OPEC had miscalculated. It was widely believed that $60/bbl oil would decimate the shale oil industry. It did not. Oil producers that had struggled to generate positive cash flow when oil was $80/bbl were now claiming breakeven costs of $50/bbl. Shell recently claimed that their newest wells in the Permian Basin could break even at $20/bbl.

Finally, OPEC blinked. The group decided last November to switch back to a strategy of supporting prices by cutting production. Its experiment to drive shale oil producers out of business had failed. Now, the question becomes whether they can succeed by cutting production. Doing so will prop up prices, which certainly helps OPEC, but it also helps shale oil producers. They are going to make up for part of OPEC’s production cuts.

How much will they make up? That’s the fundamental question. If they offset OPEC’s cuts, then OPEC’s strategy may fail. They may find themselves having to make multiple production cuts to keep prices propped up. So they will lose market share to maintain price. But the alternative for them may be worse, and that’s to dump more crude oil on the market to drive out competitors. Given that this strategy recently failed and caused the cartel a tremendous amount of money, I doubt they will be anxious to repeat that strategy anytime soon.

Follow Robert Rapier on Twitter, LinkedIn, or Facebook.


You might also enjoy…

 

Here’s What’s Really Going to Crush the Market

Most folks understand the basic concept of inflation… things cost more money. But tragically, most don’t understand the real implications of what it means for their financial future. 

Or just how dangerous it’s becoming right now. Today.

And there are two reasons for that…

First, the U.S. government’s calculations barely take into account two of the things you and I are paying more and more for every day: energy and food.

Second, since inflation really hasn’t been an issue for the past 30 years here in the U.S., most analysts won’t dare to say it’s on the rise because they’ll suffer professionally. 

But I’ve made a name for myself by always saying what needs to be said. Which is why I’ve prepared a new special report that’ll give you simple instructions on how to protect yourself from the coming storm.

And better still…

It gives you the full story on the six types of investments that are destined to soar 275%… 375%… even up to 575% over the next few years as the winds of inflation flatten the U.S. economy.

You can get your free copy here.

Stock Talk — Post a comment Comment Guidelines

Our Stock Talk section is reserved for productive dialogue pertaining to the content and portfolio recommendations of this service. We reserve the right to remove any comments we feel do not benefit other readers. If you have a general investment comment not related to this article, please post to our Stock Talk page. If you have a personal question about your subscription or need technical help, please contact our customer service team. And if you have any success stories to share with our analysts, they’re always happy to hear them. Note that we may use your kind words in our promotional materials. Thank you.

You must be logged in to post to Stock Talk OR create an account.

Create a new Investing Daily account

  • - OR -

* Investing Daily will use any information you provide in a manner consistent with our Privacy Policy. Your email address is used for account verification and will remain private.