Salient to Investors:

  • Bob Brackett at Sanford C. Bernstein said oil at $79.78 a barrel renders one-third of US shale oil production uneconomic. Bernstein said the price will rise to a level where more output is economic.
  • Vikas Dwivedi at Macquarie said any slower increase in US output would reshape the way everybody would think about oil, while new wells have to generate 1.8 million barrels a day each year to keep production steady.  Dwivedi said at $75 a barrel, growth would fall 56%, and closer to $70 a barrel, growth would drop to zero.
  • ITG said at $80 a barrel, output would grow by only 5%.
  • The IEA says oil production from shale drilling declines more than 80% over 4 years, over 3 times faster than conventional wells.
  • Philip Verleger at PKVerleger said oil at $70 a barrel could cut Bakken production by 28% to 800,000 barrels a day by February from the 1.1 million barrels a day pumped in July. Verleger said cash flow will drop as oil prices drop, while the funds to continue drilling will dry up entirely, resulting in a marked slowdown in drilling.
  • Eric Lee at Citigroup said the flood of oil from shale will put a ceiling of $90 a barrel on prices through the latter half of this decade, with the price at times dipping to as low as $70.
  • Bank of America sees a risk of a brief drop to $75 a barrel before global demand recovers in 2015, and predicts an average price of $85 in Q4.
  • Short positions on WTI is the highest in 22 months.
  • Amy Myers Jaffe at the University of California-Davis said shale drillers expanded production of natural gas even after prices collapsed.
  • Bill Kroger at Baker Botts said the companies that got in early and have low costs and already built the infrastructure will to continue to execute on their strategies.
  • Shane Fildes at BMO Capital Markets said companies that can profit at $80 a barrel may still curb their budgets as returns shrink.
  • Paul Sankey at Wolfe Research expects a supply response more quickly than some expect, and predicts a drop in completed wells in the major basins within a couple of months.

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