Is $70 Oil Enough For Shale Drillers?

23.05.2018
Courtesy of teknoblog.ru

WTI Crude prices have recently surged to their highest level in three and a half years — just above $70 a barrel. In theory, that’s higher than the average breakeven costs of all key U.S. shale plays. Even $60 WTI is higher than the average breakeven prices, as per the latest quarterly Dallas Fed Energy Survey from March.

Yet, U.S. shale producers are not necessarily raking in huge profits, although Q1 was their best start to a year in three years.

Profits are constrained by pipeline bottlenecks in the Permian, higher costs for drilling services, some bad hedging bets capping part of company sales at below market prices, the huge discount of WTI Midland crude to WTI and Brent due to said bottlenecks amid soaring production, and investment in more drilling activity.

U.S. shale producers face takeaway bottlenecks in the Permian, which is widening the WTI Midland crude discount to WTI Crude. So the prices at which producers sell their oil is not the same as the one we see on the oil price charts.

“Even as falling inventories and geopolitical risks put upward pressure on benchmark crude spot prices, tightening constraints on crude oil transport are increasingly driving a wedge between the Brent global crude benchmark and crude priced in the Permian Basin,” the Dallas Fed said in its May 2018 Energy Indicators report.

“The discount between Brent crude and WTI barrels priced in Midland increased from an average of $2 in the first half of 2017 to an average of $5.30 in the second half. Congested takeaway capacity from the Permian has further widened the discount in 2018. That spread averaged $10.77 in April—the largest monthly spread between the two since September 2014.”

The EIA also flagged the rapidly widening spread in its latest Short-Term Energy Outlook from May 8.

Source: oilprice.com

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