Will OPEC finally bankrupt US production?


Crude had a good week and a bad month. What’s next?

Well, it’s worth noting that OPEC has lost its all-in competitive advantage relative to other operators.

But there are caveats. Lots of them.

And at least one analyst says the end game for US production is “massive restructuring” and “many bankruptcies.”

Right, so oil (USO) had a good week and a (very) bad month.

After careening into a bear market, prices managed to recover after Wednesday’s EIA data showed U.S. output falling 100k bbl to 9.25m b/d in the previous week. That would be the largest dip in nearly a year, and that’s taken some pressure off prices.

And not a moment too soon. Because the shorts were piling on and so were the journalists. Here, from left, are WTI shorts, Brent shorts, and story count (key words: “bear market” and “oil”):

Needless to say, the market has lost its patience with the idea that production cuts are going to eventually balance this market.

I’ve repeatedly said that this is a road to nowhere for US producers. They are, simply put, working as hard as they possibly can to drive down the price of the very commodity they’re producing.

If you missed it, you should read FGE Chairman Fereidun Fesharaki’s note on this dynamic because it’s pretty amusing. Here are a couple of choice excerpts:

The rise in U.S. tight oil production is close to madness. It’s effectively a path to self-destruction [and] it is apparent that the downward pressure tight oil producers are generating will not stop until they are seriously crippled by their own actions in a world of lower prices around $30-$35/bbl.

A whole lot of people have gotten it in their heads that US operators can win a game of chicken with OPEC. They can’t.

Source: seekingalpha.com

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