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Crude Economics
American Frackers Already Taking Advantage of OPEC’s Actions

Well that didn’t take long. U.S. shale producers have wasted no time capitalizing on the recent bump in oil prices, spurred by OPEC’s tentative agreement to cut oil production at its semiannual meeting next month. The cartel has enjoyed seeing prices climb above $50 per barrel for the first time this year as a result of expectations for a coming reduction in the global oversupply, but so too have American producers. As Reuters reports, the number of American rigs in operation has continued a steady four-month increase thanks to this bump in prices:

The number of rigs drilling for oil in the United States rose again this week, extending one of its best recoveries with no cuts for 16 straight weeks, with analysts expecting more additions as crude prices hold over $50 a barrel…That 16-week streak of not cutting rigs was the third longest since 1987, following 19 weeks in 2011 and 17 weeks ended in 2010. […]

[S]ince U.S. crude briefly climbed over $50 a barrel in May and June, drillers have added 116 oil rigs. Analysts said prices over $50 were high enough to prompt energy firms to return to the well pad…Looking ahead, analysts forecast energy firms would boost spending to capture higher oil prices expected in 2017 and 2018.

This was always a threat to any OPEC intervention strategy, and it’s part of why the Saudis took so long to even entertain the idea of doing anything other than pumping as much crude as they possibly could. American output has taken a hit over the past year and a half as a result of the fall in oil prices, but while the shale industry has been forced to idle its less productive (and therefore less profitable) rigs, it hasn’t itself been simply waiting for a rebound. Rather, companies have busied themselves inventing new ways to squeeze more oil and gas out of the ground for less money and time invested, and as a result they’ve defied most analyst expectations by preventing output from falling off the proverbial cliff.

Now that prices are creeping back up again, the leaner, meaner U.S. fracking industry is ready to pounce. OPEC (and perhaps Russia, as well) says its willing to ratchet back production to ease the world’s glut of crude, but America’s private companies aren’t going to play ball. Instead, they’re going to seize the opportunity to gain a greater share of what has become a very crowded market in recent years.

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  • Blackbeard

    Assuming Hillary wins, as now seems likely, and assuming the Democrats take the Senate, which also seems likely, the Greens, as well as every other Democratic interest group, will want their pound of flesh. The Greens, among other things, will want fracking banned, as Hillary promised during the primaries. Will she have the nerve to push back? Does she even understand the issue?

    My prediction is no to both. Fracking will die in the U.S., the price of oil will go back over $100 a barrel, and another nail will be driven into the coffin of manufacturing in the U.S. The primary victims will be blue collar workers, if there are any left, and the bottom quintile of the income distribution. These, of course, used to be Democratic constituencies but are now up for grabs for the next Trump to come along.

    • Observe&Report

      I wouldn’t be so sure about the Democrats winning Congress if Hillary gets elected. The party that has held the White House has lost the congressional elections almost every single time. Plus, a Trump defeat will do nothing to quell anti-establishment sentiment in the US; it will simply be redirected against establishment (particularly Democratic Party) politicians at the state and congressional level.

    • Tom

      The Democrats are expected to tie the Senate, and the GOP is expected to maintain its majority in the House. Without both of those, banning fracking is a non-starter.

      • Blackbeard

        I must respectfully disagree. Did Obama need Congress to enact the new CAFE standards? No, USEPA did it on its own empowered by the Clean Air Act (CAA) and Massachusetts v. EPA. Did Obama need Congress to destroy the coal industry? No, again the CAA and some creative interpretations were more than adequate. I could go on but you see the point. We live in an administrative state and regulations are all Hillary needs.

        • Tom

          Pretty sure half the reason coal went down was because of fracking. The fracking state senators will fight that tooth and nail.

          • CaliforniaStark

            No one should assume there is any love between the coal and natural gas industries. The natural gas industry funded the Sierra Club’s anti-coal campaign up until about 2012.

            Recently on the White House lawn, President Obama gave eco-shyster Leonardo di Caprio a lecture on the role natural gas plays in reducing carbon emissions. Obama realizes, as does Clinton, that increased natural gas use, at the expense of coal, is one of the few ways to substantially reduce carbon emissions in the foreseeable future. Even many environmentalists now realize that renewable sources like wind and solar will only have a limited impact, which is why Germany and other European are moving away from them, and the French are again focused on nuclear power.

        • RealityCheck

          I thought a federal judge overturned those although the one I’m thinking of was done through the Bureau of Land Management so I don’t know if the EPA has since done anything but according to this article they were banned from interfering with hydraulic fracking but could regulate tracking that used chemicals like diesel which seems fair don’t want those chemicals in the water table. Here’s the link

    • JR

      I have high hopes for the Senate. Plus, I don’t think even Hillary would dare to undercut one of the only pillars propping the US economy, namely low energy prices.

      • f1b0nacc1

        I am far more optimistic than most (I think Trump has a strong chance to win, and the Senate looks safe for the moment…and more so in 2018….note: I will freely accept all the brickbats should I be proven wrong in a few weeks), but even if I am mistaken, your point regarding low energy prices is very well taken. If Obama (who is far more radical on the subject than the corporatist HRC would ever be) hasn’t managed to kill fracking, the Wicked Witch of Chappaqua has little chance of doing so

    • CaliforniaStark

      Hillary Clinton never stated in the primaries she wanted to ban fracking. Her position was she wanted to regulate it more, but not ban it. Sander’s accused her of being pro-fracking throughout the campaign.

      In her private conversations Clinton indicated a more supportive tone regarding fracking; which has angered environmental extremists.

      Clinton is correct in her assertion that “phony environmental groups” are “funded by the Russians to stacking.” However, Gore and his allies seem to prefer Gulf Arab money.

      • Blackbeard

        Here’s what Hillary said about fracking in the primaries: “By the time we get through all of my conditions, I do not think there will be many places in America where fracking will continue to take place,”

        Of course politicians say lots of things (“If you like your doctor…”) and then do something different. But if Hillary doesn’t follow though on this the Greens, and the Sandernistas, and the left in general, are going to scream bloody murder. Does Hillary have the nerve to stare them down? Does she even know why she should stare them down? I see nothing in her history that makes me think she will.

        • CaliforniaStark

          The statement you quoted Clinton later clarified, and in effect backed down from.

          Will Clinton stare down the greens, Sanders supporters, etc? — definitely she will. Clinton knows that power blackouts, skyrocketing gas prices etc., are political suicide. Ask former California Governor Gray Davis how much his energy follies contributed to his recall.

          Even the extremist Senator Whitehouse of Rhode Island, who is a leader in the RICO witch hunt against Exxon, broke with the anti-fracking crowd to support a natural gas power plant in Rhode Island.

  • Jacksonian_Libertarian

    Because the fracking industry has been changing over from normal rigs to walking rigs which drill many wells from the same site, rig counts have been a poor measure of oil development. Also, improving technology means the new rigs are much stronger, drill faster, and spend more time drilling.
    OPEC no longer controls the oil industry, and any talk about freezes or cuts is just that, “Talk”. “Actions speak louder than Words”, the Frackers see profitable opportunities and take action, while OPEC is “Tilting at Windmills”.

  • Proud Skeptic

    In the words of Br’er Rabbit…PLEASE don’t throw me into that briar patch! PLEASE don’t restrict your oil output!
    Loving this sooo much. God bless America. God bless American ingenuity.

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