Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
Investing in the Tulip Crypto Mania 2021 - 19th Jun 21
Here’s Why Historic US Housing Market Boom Can Continue - 19th Jun 21
Cryptos: What the "Bizarre" World of Non-Fungible Tokens May Be Signaling - 19th Jun 21
Hyperinflationary Expectations: Reflections on Cryptocurrency and the Markets - 19th Jun 21
Gold Prices Investors beat Central Banks and Jewelry, as having the most Impact - 18th Jun 21
Has the Dust Settled After Fed Day? Not Just Yet - 18th Jun 21
Gold Asks: Will the Economic Boom Continue? - 18th Jun 21
STABLE COINS PONZI Crypto SCAM WARNING! Iron Titan CRASH to ZERO! Exit USDT While You Can! - 18th Jun 21
FOMC Surprise Takeaways - 18th Jun 21
Youtube Upload Stuck at 0% QUICK FIXES Solutions Tutorial - 18th Jun 21
AI Stock Buying Levels, Ratings, Valuations Video - 18th Jun 21
AI Stock Buying Levels, Ratings, Valuations and Trend Analysis into Market Correction - 17th Jun 21
Stocks, Gold, Silver Markets Inflation Tipping Point - 17th Jun 21
Letting Yourself Relax with Activities That You Might Not Have Considered - 17th Jun 21
The Federal Reserve and Inflation - 16th Jun 21
Inflation Soars 5%! Will Gold Skyrocket? - 16th Jun 21
Stock Market Sentiment Speaks: Inflation Is For Fools - 16th Jun 21
Four News Events That Could Drive Gold Bullion Demand - 16th Jun 21
5 ways that crypto is changing the face of online casinos - 16th Jun 21
Transitory Inflation Debate - 15th Jun 21
USDX: The Cleanest Shirt Among the Dirty Laundry - 15th Jun 21
Inflation and Stock Market SPX Record Highs. PPI, FOMC Meeting in Focus - 15th Jun 21
Stock Market SPX 4310 Right Around the Corner! - 15th Jun 21
AI Stocks Strength vs Weakness - Why Selling Google or Facebook is a Big Mistake! - 14th Jun 21
The Bitcoin Crime Wave Hits - 14th Jun 21
Gold Time for Consolidation and Lower Volatility - 14th Jun 21
More Banks & Investors Are NOT Believing Fed Propaganda - 14th Jun 21
Market Inflation Bets – Squaring or Not - 14th Jun 21
Is Gold Really an Inflation Hedge? - 14th Jun 21
The FED Holds the Market. How Long Will It Last? - 14th Jun 21
Coinbase vs Binance for Bitcoin, Ethereum Crypto Trading & Investing During Bear Market 2021 - 11th Jun 21
Gold Price $4000 – Insurance, A Hedge, An Investment - 11th Jun 21
What Drives Gold Prices? (Don't Say "the Fed!") - 11th Jun 21
Why You Need to Buy and Hold Gold Now - 11th Jun 21
Big Pharma Is Back! Biotech Skyrockets On Biogen’s New Alzheimer Drug Approval - 11th Jun 21
Top 5 AI Tech Stocks Trend Analysis, Buying Levels, Ratings and Valuations - 10th Jun 21
Gold’s Inflation Utility - 10th Jun 21
The Fuel Of The Future That’s 9 Times More Efficient Than Lithium - 10th Jun 21
Challenges facing the law industry in 2021 - 10th Jun 21
SELL USDT Tether Before Ponzi Scheme Implodes Triggering 90% Bitcoin CRASH in Cryptos Lehman Bros - 9th Jun 21
Stock Market Sentiment Speaks: Prepare For Volatility - 9th Jun 21
Gold Mining Stocks: Which Door Will Investors Choose? - 9th Jun 21
Fed ‘Taper’ Talk Is Back: Will a Tantrum Follow? - 9th Jun 21
Scientists Discover New Renewable Fuel 3 Times More Powerful Than Gasoline - 9th Jun 21
How do I Choose an Online Trading Broker? - 9th Jun 21
Fed’s Tools are Broken - 8th Jun 21
Stock Market Approaching an Intermediate peak! - 8th Jun 21
Could This Household Chemical Become The Superfuel Of The Future? - 8th Jun 21
The Return of Inflation. Can Gold Withstand the Dark Side? - 7th Jun 21
Why "Trouble is Brewing" for the U.S. Housing Market - 7th Jun 21
Stock Market Volatility Crash Course (VIX vs VVIX) – Learn How to Profit From Volatility - 7th Jun 21
Computer Vision Is Like Investing in the Internet in the ‘90s - 7th Jun 21
MAPLINS - Sheffield Down Memory Lane, Before the Shop Closed its Doors for the Last Time - 7th Jun 21
Wire Brush vs Block Paving Driveway Weeds - How Much Work, Nest Way to Kill Weeds? - 7th Jun 21
When Markets Get Scared and Reverse - 7th Jun 21
Is A New Superfuel About To Take Over Energy Markets? - 7th Jun 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

American Fracking Companies Keeping Their DUCs in a Row

Commodities / Articles Feb 02, 2017 - 04:12 PM GMT

By: Rodney_Johnson

Commodities OPEC producers are cutting production… or so they say.

And in addition, several non-OPEC producers, like Russia, are also cutting production. If history is any guide we could do away with the titles and simply call the Organization of the Petroleum Exporting Countries, and the all rest, the Energy Liars’ Club.

They often say one thing and then do another.

Even Saudi Arabia’s Oil Minister noted that OPEC members have a history of lying to each other. I don’t care how they treat each other. I’m only interested in how their actions – not their words – affect the money in my pocket.

For all their dramatic statements and grand pronouncements of deals that I don’t think will ever be honored, they’ve actually already provided the United States a great service.

In their quest to kill the American fracking industry, the Saudis have made the frackers stronger.

When the competition didn’t roll over and die, the OPEC members were forced to concede defeat and take a new line of attack (the recent production cuts). It won’t work, and that’s just fine for me, because it means cheap energy is here to stay.

In 2014, oil cost about $100 per barrel. At the time, frackers were riding high. More than 1,000 rigs were at work in the U.S., breaking apart rock with hydraulic might to tap new sources of oil. Energy employment was surging, and home prices in North Dakota were rising too. The Saudis, who are the largest OPEC producers, weren’t happy.

$100 oil was a good thing, but the insurgent American frackers had driven U.S. oil production above Saudi production, and the kings of oil weren’t interested in being displaced. So they ramped up production.

As OPEC members opened the taps, and demand growth remained steady but sluggish, the imbalance between supply and demand took its toll. Oil prices started to slide, and the trend picked up speed in the second half of 2015. By early 2016, we hit the bottom, just under $30 per barrel.

OPEC ministers must have been giddy. Their program caused widespread pain across the U.S. energy sector, resulting in massive layoffs by frackers, more than a few bankruptcies, and even falling land prices in energy-rich states.

But then something happened that the Saudi’s didn’t expect.

Frackers got better. More specifically, frackers increased efficiency… and survived.

In 2014, fracking companies broke even at $60 per barrel. The cost of recovering oil includes the exploration and drilling process, which is expensive, as well as pumping it once it’s located, which costs a lot less.

As oil prices dropped, frackers capped wells they hadn’t completed yet, which are called “drilled but uncompleted,” or DUCs. They focused on the more profitable wells that were already producing. They used the down time to work on efficiency, and eventually dropped their break-even price to $45.

Now American fracking companies have the best of both worlds – a bunch of DUCs already in hand (or, pardon the pun, in a row), located and ready for completion, and oil prices comfortably above their break-even price.

So, as the Energy Liars’ Club pushes up the price of oil, they’ll simply draw frackers back into production. In fact, this is already happening, as can be seen by the number of rigs in the U.S.

After dropping to a low of 316 rigs last summer, the U.S. rig count in operation on land has rebounded to 529, or 13 more than there were this time last year. This is a long way from the top in 2014, when just over 1,600 rigs operated. But, hey, that just means we have a long way to go.

Right now, U.S. energy producers have a problem bigger than the price of oil, but one that’s solvable.

When oil prices plummeted, companies had to idle production, put equipment in storage, and lay off their employees. Getting equipment back is easy, but getting people back is hard.

Skilled workers found other jobs, and are probably hesitant to go back to an industry that fired them the last time around. So frackers will have to entice back previous employees with higher pay, train new workers, or some combination of the two. This will take time.

It’s possible oil prices will creep up a bit more as frackers slowly expand their operations, but eventually U.S. production will ramp up, and I expect oil prices will come down.

Members of the Energy Liars’ Club will break their production commitments to each other, adding even more supply to the system.

And frackers will get even more efficient… putting a lower lid on prices for years to come. That’s at least one cost that should remain low for consumer’s businesses, making those higher medical care and education costs just a bit easier to stomach.


Follow me on Twitter ;@RJHSDent

By Rodney Johnson, Senior Editor of Economy & Markets

Copyright © 2017 Rodney Johnson - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Rodney Johnson Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in