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August 2, 2018

Shale companies in USA are facing with the serious problem?

Shale companies in USA are facing with the serious problem?

Crude oil output in the Permian oil field becomes uneconomic, despite the huge production in this region.

The slack in infrastructure of the Permian basin hit even British Petroleum, admitted Bob Dudley, the head of the company, in the interview for Bloomberg TV. Losses from trade turned out to be insignificant for the oil giant, but many other companies are facing them too.

Let us remind, that over the past year the production of crude oil in the Permian field increased by 36% or 857.2 thousand barrels and reached 3.3 million a day.

Such a rapid growth has led to the fact that all free transportation capacities have been occupied. This forced producers and oil traders to make discounts, in the end, the difference between the cost of oil from Permian (Midland) and the oil from Cushing, rose from 0.40 cents at the beginning of the year to 16 dollars in July.

 

spread crash

 

Spread between Midland and Cushing. Source: Bloomberg

That is, companies producing in this region, sell their crude oil approximately 22-23% below the WTI reference.

In theory, this discount should lead to decline in crude oil production in the Permian and boost it in other fields. It will most likely have an impact on producers’ rates, because the process of drilling has been already launched and it’s practically impossible to stop it. But, of course, it will take some time.

 

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