econintersect.com
       
  

FREE NEWSLETTER: Econintersect sends a nightly newsletter highlighting news events of the day, and providing a summary of new articles posted on the website. Econintersect will not sell or pass your email address to others per our privacy policy. You can cancel this subscription at any time by selecting the unsubscribing link in the footer of each email.



posted on 17 November 2015

Why Oil Production Is Increasing, Despite The Oil Glut

by Kent Moors, Money Morning

Money Morning Article of the Week

We have just come out of a period in which crude posted a modest recovery. Through close on Nov. 3, West Texas Intermediate (WTI) - the crude benchmark traded in New York - had improved to $47.90 a barrel, up 4.3% for the week. Dated Brent, the equivalent benchmark set in London, was at $50.52 - higher than at any point since Oct. 9.

WTI closed at $42.93 Wednesday, down 1.4% in the six intervening sessions. Meanwhile, Brent was at $45.83, down 9.3%. Both are sitting at two-month lows.

The "culprit" was another anticipated rise in oil production, primarily in the United States. Despite weekly declines in the number of working rigs in the American market (now at the lowest levels in some six years) and, as I noted earlier this week, rising cuts in capital commitments for new projects, the market surplus in oil is once again rising.

Crude oil prices are languishing in the face of what is projected to be another build in U.S. production stockpiles.

Given all that has been said about an oil glut, why is oil production continuing?

Field Technology Has Advanced at a Rapid Pace

There are two overriding answers.

First, as the surfeit of shale and tight oil production hit the market a year ago, and continued thereafter, developments in field technology advanced even quicker. When oil prices were north of $80 a barrel, operational costs were of little consequence.

True, well efficiency was not something entirely discounted. But the profit margins were so large that companies could provide nice returns by running more or less traditional operations.

Remember (as I have observed in Oil & Energy Investor on a number of occasions), most companies were cash poor during much of the last decade, with a ready and affordable debt market only too eager to make up the working difference.

When prices began the downward spiral, however, and continued descending by some 60%, efficient field operations became essential. The more expensive new projects were mothballed, but new approaches to drilling, pad design, well completion, and workovers were introduced, declining wellhead costs.

Added to the technological improvements one could see on the surface, advancements in enhanced and secondary recovery techniques downhole brought more oil up from each well. The average production, coupled with a greater amount of known reserves becoming accessible, began to rise.

More Efficient Field Operations Boost Surplus

Now, in the case of unconventional (shale/tight), horizontal, deeper, fracked wells, the primary production would still come up in the first 18 months or so. Extraction would continue longer than that but at an increasingly reduced rate.

Some of these wells could experience a short-term improvement via water flooding, natural gas injection, chemical treatments, or other secondary/enhanced techniques. Yet as the market price declined, for larger projects these techniques became cost ineffective. Companies would cream the easiest production from first flow.

Nonetheless, the aggregate amount of oil coming up significantly expanded. The primary reason for the current consistent surplus arises from the introduction of more efficient field operations, allowing cash-strapped companies to continue production even as the wellhead price (the producer's revenue from the first exchange of oil, always lower than the resulting market price) went down.

>>>>> Scroll down to view and make comments <<<<<<

Click here for Historical Investing Post Listing










Make a Comment

Econintersect wants your comments, data and opinion on the articles posted.  As the internet is a "war zone" of trolls, hackers and spammers - Econintersect must balance its defences against ease of commenting.  We have joined with Livefyre to manage our comment streams.

To comment, using Livefyre just click the "Sign In" button at the top-left corner of the comment box below. You can create a commenting account using your favorite social network such as Twitter, Facebook, Google+, LinkedIn or Open ID - or open a Livefyre account using your email address.



You can also comment using Facebook directly using he comment block below.





Econintersect Investing


search_box

Print this page or create a PDF file of this page
Print Friendly and PDF


The growing use of ad blocking software is creating a shortfall in covering our fixed expenses. Please consider a donation to Econintersect to allow continuing output of quality and balanced financial and economic news and analysis.


Take a look at what is going on inside of Econintersect.com
Main Home
Analysis Blog
The Destruction of the Existing Workforce
Minsky’s Theory of Asset Prices: Why Minsky Was NOT a Neo-Monetarist
News Blog
Super Bowl Ad Prices Doubled In A Decade
What We Read Today 21 January 2017
People Who Laughed At TRUMP...and Said He Would Never Be President
Disentangling Cyclical From Structural
Rent Growth For Lower-Priced Rental Homes Stayed Strong, But Higher-Priced Rental Homes Slowed In 2016
How Do Imports Affect Manufacturing Jobs?
Active Vs Passive Investing: And The Winner Is ...
Infographic Of The Day: The Incredible Pigeon
Early Headlines: Global Unaffordable Housing, Trump Signs ACA Exec Order, Trump Orders Halt To Regs, HealthCare.gov Enrollments Increase, Greek Tragedy, China Household Debt Surges And More
The Rise Of The Gluten-Free Diet
Who's Smoking In The U.S.
Six Cosmic Catastrophes That Could Wipe Out Life On Earth
What We Read Today 20 January 2017
Investing Blog
Technical Thoughts: Three From The Trading Room
Why Are Investors Moving To ETFs?
Opinion Blog
Economics, Society, And The Environment: What's Wrong With This Picture?
How To Read Theresa May's Brexit Speech
Precious Metals Blog
Four Catalysts Drive Gold And Silver For 2017
Live Markets
20Jan2017 Market Close: U.S. Stocks Were Up But Off Their Highs Of The Session, Crude Prices Continue To Climb, Next Week May Be Volatile
Amazon Books & More






.... and keep up with economic news using our dynamic economic newspapers with the largest international coverage on the internet
Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government





























 navigate econintersect.com

Blogs

Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day
Weather

Newspapers

Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government
     

RSS Feeds / Social Media

Combined Econintersect Feed
Google+
Facebook
Twitter
Digg

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution

Contact

About

  Top Economics Site

Investing.com Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2017 Econintersect LLC - all rights reserved