United States shale industry is in recovery and at a turning point in its role to help stabilize world oil prices – accordin to Dan K. Eberhart, the CEO of the Denver-based Canary, LLC, the largest privately held oilfield services company in the US.
“Energy economic indicators are positive,” Eberhart said. “Not only have Brent prices increased about 40 per cent from last year’s lows, but recent rig counts have also shown a significant “flattening” of the downward count. In horizontal oil rig activity, we’re seeing an uptick to positive activity after the six-month fall the industry took when oil prices crashed.”
Oil rig data provided by Baker Hughes on Friday shows a loss of 13 US rigs. While that number is higher than last week’s loss of only one rig, the overall trend during the last 24 weeks has been a slowing rate of decline. On May 1st, for instance, the US oil rig count had fallen by 24, following losses of 31 and 26 rigs during the prior two weeks. Goldman Sachs, meanwhile, has reported that the horizontal oil rig count has increased by four.
“With the price of oil bottoming out in January, the US shale production peaking in April, and the rig count stabilizing, the industry is on the way back,” Eberhart said. “With Brent hovering around $63 a barrel and West Texas Intermediate at $60, the industry will reignite because of continuous investment in innovations that have allowed us to pump out light, tight oil for 20 percent less than we did just a few years ago.”
The US shale industry is also moving rapidly into the role of worldwide “swing producer,” supplanting OPEC by delivering more crude to the market as prices increase, and also putting a cap on production to stabilize prices when Saudi Arabia, the putative leader of OPEC, refuses to do so.
“The OPEC house of cards is unstable,” Eberhart observed. “OPEC nations are bickering among themselves as Saudi Arabia faces growing domestic insecurity and questions about its role as the cartel leader. Saudi Arabia simply doesn’t trust the rest of OPEC’s production mix.”
Last November, when the Saudis refused to cut OPEC oil production despite growing inventories and plummeting world prices, the aim was to knock out the US shale industry while shoring up OPEC’s eroding market share.
“It didn’t work,” Eberhart said. “Between 2007 and 2015, OPEC’s global share actually declined from 37 percent to just 31 percent. Meanwhile, global demand for oil grew by 6.6 million barrels per day over the same time period.”
In next week’s run-up to OPEC’s semiannual meeting in Vienna, the Saudis are likely to continue ramping up oil exports.
OPEC is targeting China and other Asian nations as a replacement for eroding business in North America. “The sheiks are vowing once again to reclaim OPEC’s world market share by keeping production quotas high while other members of the cartel – among them Iran, Iraq, beleaguered Venezuela and Nigeria – are clamoring for production cuts to raise prices,” Eberhart said.
“The Saudi strategy is backfiring, hurting the economies of other important members of the OPEC alliance,” Eberhart said. “On the other hand, the US shale industry is here to stay. Our willingness to adapt to changing markets and prices has allowed us to grab the swing producer’s throne. No Saudi games will change that fact.”
SOURCE Canary, LLC
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