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WTI up 9%. Brent up 4.2%
I was thinking the same, the shale is there and without debt will it just come back stronger.
I think the answer is, those that buy at pennies on the dollar without further debt will only buy the premium spots and then will no doubt think long and hard at how profitable it is. They may keep it producing as an asset but with low oil prices the numbers won’t work to be worth drilling more wells at sub $50. Let’s face it they won’t have to drill baby drill as they are not on the debt treadmill. The only reason these guys have kept drilling is because they have had to! Think of it a simpler way, if Debeers found a Diamond mine where they could pull out Diamonds by the ton, would they flood the market and cut there own throats? Of course not, they would sit on it and just dribble them onto the market when needed. Shale would do the same if it were not for the incredible debt burden. They talk about protecting shale but it distorts the market, the natural order is if you are profitable you survive, if not you fail and make room for someone else that is.
They have known about shale for decades, it was only the high oil price and easy money on low interest rates that got it all started. Yes some folk have made money, but more from the pots and pans and buying acreage “with more oil than Saudi!” Only to realise the ones holding that acreage will only get 1 or 2% of that oil out if they are lucky. It is a massive Ponzi scheme and if the US Gov further distort things by supporting them and thus extending these low oil prices, we are all going to pay a price further down the road. So easily we forget the AAA rated mortgage loans, safe as houses, traded here and there until the last minute when everyone realised they were actually junk.
Let’s see what OPEC+ Decides to do, if nothing there could be a lot of pain all around, if they do something will it be too little too late!
LTT
Which presupposes the fire sale buyers will be debt burdened ?? Without debt they will come back stronger ! Perhaps ?? Fact remains the. Shale is there! And I think a USA That feels hung out to dry by Russia and Saudi during covid may well become more isolationist !! They are not oil dependent with a shale industry without it they are again at the mercy of OPEC ! That they will not allow me thinks.
Shale was up the klacker when oil was hovering around 60 brent, now rigs demobilizing at fast track rate. Shale production going to fall rapido, and it all depends on whether the subsidies (wallstreet) will restart as to whether rigs remobilize post CV crash. You are forgetting that no one was making money before and that borne out by the top 40 shale producers not being fc positive in 14 quarters. Shocking business model akin to something the old Soviets would call a success. Certainly bucks the trend re capitalism. All technology savings applied and all sweet spots drilled and still not profitable. The only benefit of shale is that it kept a lid on global oil prices which benefited other areas of the economy. So I suppose in some respect shale has value but the specific business model is classic debt trap.
You are right I think some shale will survive, without the debt around their necks they might make money above $40 a barrel, but anyone snapping up assets will think twice about piling in more money to raise production at these lower oil prices. The only reason they currently keep pumping come what may is because they can’t stop, they have to keep going just to keep up the payments on the debt. Profits of any kind are but a dream. If US decides to subsidise the shale industry then all bets are off, Russia will walk away and its a race to the bottom IMHO.
Monday will be interesting for sure!
LTT
Everyone keeps talking a out shale imploding ??? The us is probably THE capitalist state! The shale goes no where ! Banks take a bath on bankruptcy’s, The assets are seized and sold and the shale tap is turned on again !!! However in that scenario the us Could become isolationist about oil ! Tariffs tax breaks for domestic shale refinery’s who knows but they will have a long memory about it IF. A deal is not done ?
Hehehe. I like the way he dressed it up as a genuine post!
Shorttermthinking, second and third wave to follow.
As there is no alternative. Well there is, keep pumping, the price goes back to $20 and then once the storage options are full they will have to shut in. Shale would implode along with many other producers, it would be terrible.
Doing the right thing now will ultimately be better for all. A feel a lot of damage has already been done to the shale patch and many others around the world, this oil glut will not last for ever. Let’s face it, once the virus is on a back foot and things start to relax, businesses that have survived in all sectors will be hell for leather to catch up. Folk will be driving to the seaside, visit relatives, go on holiday to celebrate the end of lockdown. And those gaps in the market left by companies who have failed will be filled by the ones who weathered the storm and be prosperous. It won’t happen overnight, it won’t be easy, but it will happen, it’s the law of nature, survival of the fittest, those who can adapt, see opportunity.
It’s coming, maybe not next week, or next month, but it will come and things will get better.
LTT