Art Berman
It doesn’t matter whether wells are newly drilled and completed or DUCs—there are simply too few wells being added to maintain present levels of production.
It is unlikely that the tight oil business will recover from its 2020 body blow. Saudi Arabia’s decision to cut production by 1 mmb/d tacitly acknowledges that it is unconcerned that higher prices will result in a resurgence of U.S. output.
The time from well start to enough production to offset base decline is almost a year—six times EIA’s estimate. It is nearly impossible for U.S. production to be flat at 11 mmb/d for 2021.
The market knows that investment is needed immediately. The consequences of ignoring what the market knows may be economically disastrous for a struggling world economy.
What lies ahead during the lifetimes of our grandchildren will most probably not be comparable to anything since the development of multi-cellular life on Earth.
What the yield curve tells me is that there is little likelihood that oil prices will increase to much above $45 on a sustained basis until the market changes its sense of supply urgency. Until that happens, the yield curve provides good opportunities to play the excursions.
Oil was responsible for the singular economic growth after World War II. It is the only thing that can prevent slow growth from becoming negative growth in that new world order.
Missing barrels are inherent in the supply-demand accounting method that ignores inventory and only considers present period transactions.
What concerns me most is what will happen when markets realize that U.S. oil production will fall to levels not seen since the early 2000s.
It is unlikely that either oil supply or demand will ever return to 2018 levels.
Oil prices are stalled in the low $40s for WTi and mid-$40s for Brent. Producer behavior indicates that prices need to be lower.