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'Swinging' For the Fences

Every country in the world in the business of producing oil wants high, stable oil prices. President Trump needs high oil prices to "dominate" the rest of the globe with American LTO exports; the KSA has a pending IPO it needs to sell and other countries, like Venezuela, are on the brink of economic collapse. For weeks OPEC as been hollering about it needing $80 oil prices then just last week, in a complete about-face, Saudi Arabia began blabbering about raising its production rates to lower prices.

So, in 4-5 trading days, just in time for Memorial Day weekend in the good 'ol US of A, oil prices fell 9%.

What the hell happened to make the KSA change its mind?

WTI Oil Prices

Here's what happened: Its an election year in the US, an election cycle vital to Republicans retaining the majority in the House. High gasoline prices are never too bueno when scrounging for votes. Trump called in a chip and the KSA delivered. Down goes oil and down goes gasoline. People take weekend trips in their SUV's and everything is peachy. America now has the hammer on oil prices. Thanks to the miracle of US shale oil, the Middle East is now out of America's lives forever, the divorce finally complete, right?

So, if Trump needs lower gasoline prices why not ask EOG, PXD, CLR and the rest of the US shale oil industry to raise it's production rates?

Because it can't; not fast enough. The only "spare production capacity" the US shale oil industry has to drive oil markets is "drillable locations" that require $8 million or more, each, to drill and complete and that take 6-8 months to get into the tanks. If they can even sell the stuff anymore; every empty 5 gallon bucket in West Texas has crude oil stored in it and it isn't the stars at night that are big and bright, deep in the heart of Texas... its flare stacks burning off associated gas that can't be sold.

American shale oil is NOT the world's new "swing producer." It never was. American shale oil represents less than 6% of total daily production rates in the world, is expensive as hell to extract, is totally dependent on low interest rates for borrowed capital, or deferred debt, and declines so quickly you don't want to be standing behind it because the vacuum will suck you plum off your feet.

We need shale oil in America. Its important. What we don't need is all the bullshit that goes along with it. Like $29 break even prices, or the idea that shale oil growth is now self-funding (what happened to all that debt?)... or this 'swing producer' nonsense.

How does America "influence" world oil prices when the unconventional shale oil production we've bet the farm on declines like this the day we stop drilling wells?


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