The Energy Report | Crude Fails to Tap $60

Posted on 12/22/2017 12:19 PM

The big question for energy traders this week, is whether or not WTI crude can post a 60 print. We thought, of course, that we should have seen a 60 print already but most of the bullish momentum has gone to the Brent crude this year and it will take a bit of time for WTI to follow. Part of the reason for the WTI crude weakness of course has been U.S. shale and while traders and hedge funds have overestimated shales flexibility and production potential, industry insiders have not. In fact just yesterday BP CEO Bob Dudley, in an interview with the Financial Times, said that there is a limit to how big a role U.S. shale can play in the global oil market, according to the chief executive of BP, who said traditional producers such as Saudi Arabia and the usual suspects.

He told the FT something we have been telling our readers and that is that he is less worried about the extent to which U.S. shale resources could hold down prices as more was learned about their geology. “There are cracks appearing in the model of the Permian being one single, perfect oilfield.”.

He is seeing what my contact and CEO Harold Ham is seeing, and it is important for the market to understand this reality. There has been a lot of reports that have offered unrealistic expectations for shale and overestimates of production shale and that is a determent to shales future and the U.S. economies future. Bad info leads to bad planning and that could leave us short. Because of that we feel that the wide spread between Brent and WTI will tighten in the new year as shale realities start to be understood by the market. U.S demand for WTI will also surge as U.S. refiners get huge benefits from the Trump Tax cut. A great time to build a U.S. refinery!

On top of that, as we have written before, that it is hard to be a swing producer when you can raise production and lower production quickly as need be. The Shale process along with the step decline rates and continually having to find new sweet spots to drill is a much harder task than pumping oil out of a Saudi well.

I am not bashing shale. I was talking about shale oil and its potential to change the world before many even had heard about the technology advances. Shale oil protection is still one of the biggest oil stories in the history of oil. At the same time, I think it is important to look at the reality and I think Bob Dudley is right about Shales inability to be a consistent swing producer. Last year did creep next year WTI should leap. Natural Gas bulls are hoping for a White Christmas, well really hoping for a cold Christmas. The U.S. Energy Information Administration (EIA) reported that U.S. natural gas stocks decreased by 182 billion cubic feet for the week ending December 15. Even though the number was bullish based on expectations warming forecast put downward pressure on the market anyway.

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