U.S. Frackers now oil market’s Swing Producers

Imagine U.S. technology and American ingenuity making an impact on reducing gasonline costs - and U.S. consumers benefitting.

Is this really a big surprise?  I'm glad we got U.S. frackers in our future.

OPEC has wielded power since the 1970s.

But power has shifted (or let's say it has swung!): now the frackers in the U.S. are swinging prices.

Keep fracking and keep swinging, you U.S. frackers!  God Bless You!  PB
----

From the Economist.com:

Big companies making big bets on big oilfields, while a cartel of oil-producing states [OPEC] fixed the price to keep itself rich and others, including the oil majors, profitable. That, in caricature, was how the oil industry once ran.

That model now seems broken...

Last November, with prices already slipping, OPEC’s members stopped trying to agree production quotas among themselves, sending crude tumbling further.

Their hope was that this would force rival producers, especially in the American shale beds, to slash investment.

As supply tightened drastically, the oil price would rebound.

This has not happened.  Prices have staged only a partial recovery...

The big oil multinationals, such as BP, Chevron, ExxonMobil, Shell and Total, have responded to the weaker oil price by cost-cutting, and postponing and cancelling some of their exploration projects.

However, the output of the shale firms [frackers] has proved surprisingly robust, even though they have cut their number of rigs significantly since the peak last October.

One reason for this is canny hedging by some shale producers, which means they are in effect getting paid above the current market price.

But many unhedged producers have also continued to pump oil, since the market price is still above the marginal cost of producing another barrel, even if it doesn’t cover the upfront costs of drilling the well.

Most important of all, their productivity has continued to improve in leaps and bounds.

Wells that used to take 35 days to complete now take 17, says Daniel Yergin of IHS, a research firm. The amount of oil produced per dollar invested will rise by 65% this year, he says.

Better seismic data, improvements to the fracking liquids pumped into wells and more intensive deployment of rigs are all helping...

But the principle is clear: American shale firms have become the new “swing producer” of the global oil market.

Its main influence used to be OPEC, and particularly the Saudis, switching the taps on and off to try to rig the price.

Now the market is increasingly led by the American frackers, ramping their drilling up and down in response to global prices.

Petromatrix, a consulting firm, has coined the phrase “shale band” for the price range between $45 and $65: below that range, American production falls sharply; above it, it surges.

If so, there should be a tendency for prices to stay within that range.

The greater the proportion of the world’s oil supply that comes from fracking, the stronger this effect will be.

The American government’s Energy Information Administration has in the past three years raised its forecast of American oil output in 2020 by 3.1m barrels per day to 10.6m—the equivalent of adding another producer the size of Iraq...
----
Link: http://www.economist.com/news/business/21651267-american-shale-firms-are-now-oil-markets-swing-producers-after-opec