Monday, January 23, 2017

Shale Oil in Recovery


Shale people liking this $50 level...





13 comments:

Ryan Harris said...

West Texas booming, East Texas showing green shoots. South Texas/Eagle Ford, still dead at these prices. I don't know about the East Coast or North Dakota, I haven't been watching data on their rigs.

Bob said...

What emotion are the tar sands people conveying?

Matt Franko said...

Bob here:

http://www.facstaff.bucknell.edu/mastascu/econtrolhtml/intro/intro3.html

Mgmt uses ex post accounting so management is closest to Integral Control here...

As they get closer to the demanded production rate they will cut back and they seek to not overshoot at all...

This is interesting about Integral Control:

"The main thing to take from this lesson is that integral control will produce zero SSE. There's not if's, and's or but's about it. It will be zero. "

So NO overshoot which is the type of performance they want...

But this is traded off for responsiveness:

"The disadvantage is that integral control might produce a closed loop system with significantly slower response times. "

So this is just going to keep creeping up until all orders are being filled and there will be no overshoot... they dont care how long it takes they just want to make the most munnie while they get there....



Bob said...

How can that work if there's no monopoly? And collusion between producers is illegal.

Matt Franko said...

Its a macro model...

This is the non-cartel sector acting to displace the cartel sector market share in North America....

If they can make munnie at $50/bbl, eventually this non-cartel sector production will increase to displace all cartel sector product being sold into the non-cartel sector and stabilize there as nobody will produce what they dont have any orders for.... it wont overshoot this way....

It will take a bit longer but there is less risk of overshoot and production of product that there is no orders for....

Bob said...

Inefficient, uneconomic producers will have to get out, that is tough to say, but that's a fact. - Ali Al-Naimi, Saudi oil minister.

When he said that, oil was at $20

Matt Franko said...

With the acquisitors, its about quantity not price....

Bob said...

Tell that to Venezuela...

Matt Franko said...

They are in the monopoly/cartel sector...

MMT: "its about price not quantity..." ie govt is a monopolist...

Tom Hickey said...

If they can make munnie at $50/bbl, eventually this non-cartel sector production will increase to displace all cartel sector product being sold into the non-cartel sector and stabilize there as nobody will produce what they dont have any orders for.... it wont overshoot this way...

From what I was reading at the beginning of the price drop, they need ~ $80/bbl long term.

Matt Franko said...

Tom they put the price of their own product in their cost models in discrete time...

so when the discrete interval rolls over, and the price of their own product has gone down, then they just plug in the lower price and re-run the math and then it goes down...

I look at Tillerson to State as him packing it in and taking the one time tax break that cabinet people get to take the job (similar to Hank Paulson to UST...) ... he knows the jig is up for quite a while for someone his age... XOM earnings cut by over 50% with the price drop....

Ignacio said...

80, or 50, or less, or more, depends on existing reserves.

As 'easy to get' reserves are exhausted the break even price increases, just like normal oil production: you need to put a certain amount of energy and resources to get energy out and certain points it's not worth extracting. If more reserves are discovered and can be easily exploited the break even price drops. It's not a fixed factor. Good thing is that the worldwide production chain is not a bit more resilient to energy prices and can finance oil sector bankruptcies so they can increase supply when price is good to open up more rigs, however the supply is limited and it will peak and plateau just like normal oil but at a much faster rate (those rigs get exhausted pretty fast).

For now it works as a price cap to the oil producers but it has to go very high to make a dent on the world wide market as it's a negligible share of the total production quota. But it's good it's there as an alternative while other more important trends kick in to diminish oil importance (at least hopefully or it will be chaos in a couple decades).

Long term demographic and other changes (urbanisation, technology replacement, re-localization, etc.) will be a (or already are) a bigger factor in reducing oil prices and importance.

Bob said...

They are in the monopoly/cartel sector...

Venezuela is not a monopoly, as there are other oil producers.
They are in a cartel, but it's the Saudis who call the shots. Low cost producer inflicting pain...