Oil prices

OPEC Production Cutbacks, Oil Prices and Fracking

The petro-autocracies attempt to get more cash to buy off their restive populations will fail

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Gumpapa/Dreamstime

A couple of weeks ago, the Organization of Petroleum Exporting Countries (OPEC) along with Russia agreed to cut back their crude oil production by 1.2 million barrels per day. The goal is to reduce supplies and thereby boost prices.

Since the OPEC agreement, the price of West Texas Intermediate (WTI) oil as jumped from $45 to $52 per barrel and the average price for regular gasoline has increased by 6 cents to $2.26 per gallon. Are we likely to see prices surge above the $100 per barrel benchmark last seen in the middle of 2014? There are good reasons to doubt it.

First, fracking in the United States means that oil drillers in this country now function as swing producers that can moderate global prices. In fact, as the price has increased, more oil drilling rigs have been deployed. As The American Interest notes, when prices fell, American oil production dropped more than 1 million barrels per day, but has since rebounded by 300,000 bpd over the past month and a half. Trump's promise to open up federal lands to more oil and natural gas production will also tend to lower petroleum prices.

In an email, Strategic Energy & Economic Research, Inc. oil analyst Michael Lynch tells me that "the OPEC deal suggests more cohesion than in many years, but it is almost certainly going to be challenged by rising production in LIbya and Nigeria. I think $50 will mean a resurgence of US shale, which will certainly give the Saudis some pause." Lynch adds, "Always bear in mind that in the short term, traders perceptions dominate. If global inventories fall and compliance to the deal looks strong, we might test $60, but I don't think that will hold very long."

This latest attempt by struggling petro-autocracies like Iran, Venezuela, Angola, and Russia to get more cash needed to buy off their restive populations will fail.

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17 responses to “OPEC Production Cutbacks, Oil Prices and Fracking

  1. Maybe this means they’ll start pumping more than a nominal amount out of my well and I’ll start seeing some royalties more than ever few months. There are wells in my area that are basically idle, waiting for the market to make it worthwhile to go balls to the wall on production.

    1. As long as you oil riches don’t make you disregard your commenting responsibilities.

      1. No matter to what heights I soar above you all, I shall remain a man of the people.

    2. Have you volunteered your orphans to man the well? That’d make it much more cost-effective to run.

  2. Maybe this will help Alberta, as they’ve had a huge drop in oil production ever since NDP (the Socialists) got elected, which I’m assured was only because of low oil prices.

    Of course, NDP has just passed a carbon tax, because that’s what a province deep in recession with hurting energy industry really needs.

  3. ever few months.

    Fist, you…you’re a redneck??

    1. Jr: Not that there is anything wrong with that, right?

      1. I was just poking fun at his typo reading like Neckspeak.

  4. What makes Angola a “petro-autocracy”? I’m not saying I agree or disagree with the moniker, but it’s not one of the countries usually bandied about as such.

  5. Remember, several years ago, when people were saying that it was pointless to try to solve the high oil prices of the day by opening up more fields and drilling more wells, because it takes years to bring those to production?

    Well, the frackers did it anyway, and the ceiling on the price of oil keeps coming down. This is why the answer to “It will take too long” is “Sounds like a reason to get started right now, then.”

    1. I am, at this point, convinced that the whole ANWR business had nothing to do with any actual conservationism and was solely to help drive up the price of oil so that people had more reason to ditch it.

      1. Absolutely, alternate energy is currently much more expensive and less reliable than oil. Convincing the petition-crazy mob that the whole of ANWR would be despoiled and every living thing there drowned in crude oil was the only way to prop up crude prices.

    2. They have been saying that since at least the 1970s. They also like to toss around terms like “proven reserves” and other BS. It is almost as of they taught the climate change crowd how to speak in circles.

  6. Trump’s promise to open up federal lands to more oil and natural gas production will also tend to lower petroleum prices.

    LOWER PRICES! TRUMP WILL DESTROY THE PLANET! /progtalk

  7. There are many North American companies who have gotten their break-even levels down quite a bit in the last year. At $55 on the strip they can hedge and have positive cash flows. This agreement is a bit of a transfer of wealth back to N.America from the middle east which is always a good thing in my book.

  8. OPEC knows that TrumPutin will nuke them if they don’t reduce production. However, Trumpkins will cry as energy prices rise. They cheered for bombing ISIS and for torture and banning them from the country, but that is hardly worth the price. They got cucked, though I don’t understand why they haven’t realized it yet.

    1. Sounds like antithesis of Obama voter, who voted for him to stop the seas rising, start the Carbon Police SuperForce, and to make electricity prices, as the Lightworker guaranteed, ‘skyrocket’ as the nation would be paved in solar panels, rainbows, and the crushed bones of heterosexuals also having no gender confusion (the nerve!).

      Talk about getting cucked.

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