Update on the oversupply of oil; Saudi plans
Doesn’t look like Saudi Arabia will be cutting back production anytime soon. Seems they want to keep crude prices low. Drillers are responding creatively to the price pressure.
10/2 – Bloomberg at Calgary Herald – Drillers taking it slow on shale wells in bid to squeeze out more oil – Drillers are intentionally slowing down initial output of shale wells. That is called choking back. Apparently this has the effect of keeping more frac sand in the ground instead of being flushed out with the high initial flow of oil. Article says drillers choking back are seeing higher total recoveries from their wells than other drillers.
In addition to increasing production, this defers some production to later, when prices are expected to be higher.
This also means that initial production amounts (IP) are not necessarily an indicator of the estimated ultimate production (EUP).
In addition, this suggests total production from Bakken and Eagle Ford won’t be dropping as quickly as you would expect by the drop in drilling rigs.
Finally, you can file this in the category of human ingenuity always increases production. Also, file this under Peak Oil Is Still Wrong.
11/8 – Financial Times – Saudi Arabia will not stop pumping to boost oil prices – Links to the paper indicate Saudi Arabia has no intentions of dropping their production. They intend to keep prices on the worldwide market very low.
With an OPEC meeting coming up in December, a war between Saudi Arabia and Yemen, and the need for massive social spending to keep everyone happy in Saudi Arabia, things could get messy.
One set of speculation on that point:
11/11 – Ambrose Evans-Prichard at The Telegraph – Saudi Arabia risks destroying OPEC and feeding the ISIL monster – Lots of grumbling from Algeria, Venezuela, and Ecuador, all complaining that Saudi Arabia’s plan to flood the world with crude is devastating their governments and economy.
Estimates from IEA are that annual revenue for OPEC members has dropped from 1 trillion to just over half 1 trillion (from ~$1,000B to ~$550B). One non-OPEC members oil minister said Saudi has fallen into the trap of their own making.
Article raises the idea that perhaps the goal (or maybe one of the goals) of the Saudi’s in crash in oil prices is to stop solar and wind as competitors to crude. Author says it’s too late to do that. That Saudi goal has failed
Article says US oil production has dropped since April by about 550k bopd, but production is now what was October year ago. If that sentence means what I think it means, the net effect of Saudi Arabia crashing oil prices has not been to take 1M bopd of production off the market out of America’s production but has left America where it was a year ago. That Saudi goal has failed as well.
Entertaining unintended consequence is the +1,000 wells on the North Dakota fracklog just waiting to come on the market. In addition, the technology is ready to gear up production as soon as prices rise.
Author’ suggestion would be for Saudi Arabia to let prices come up to about $75 in order to maximize revenue while there is still demand for their oil.
Article points out Saudi Arabia’s credit rating has been dropped to A+ by S&P and the country is running a $100B deficit per year (I think it has been worse that in the last 12 months). Regardless of the exact amount, the country is now the place where they need to be calculating a burn rate for their foreign reserves.
Article closes by raising the “macabre irony” that perhaps Saudi Arabia’s efforts to slash prices might actually crater their economy, bring about some force such as ISIL which overthrows the government, and balances supply and demand by a radical reduction in Saudi production.