Oil Prices

[tanjm]

North American shale oil production is up to about 8m barrels a day (bpd) versus a 2m bpd gap in supply over demand

tanjm san

According to EIA, tight oil (aka shale oil) production in North America (including Canada) is only about 4 million + barrels per day.

with $65 per barrel production being economical at about 6m bpd production. This assumes no fresh supply at a lower cost of production.

The common mistake is to treat oil production like production of normal consumer goods such as iphones but some of the key points I can think of are:

Oil wells suffer from production declines
Conventional oil production declines without additional capex. The average annual decline rate in approximately 8%-10%. Tight oil wells' annual production decline rate is approx 40%-60%.

Oil price is above cash costs
At the present moment, I have not heard of any oil company who has stopped production from existing oil wells as the oil price is still above cash costs. The more immediate response is to cut capex which affects future production. Therefore, we will see a lagged effect between cut in capex and a decline in oil production.

Actually, I don't take my own forecast that seriously. That's why I used the word "Crystal Ball" (in an ironical manner).

But to address your reply...

My mis-statement here : the original link I posted refers to all crude oil output in North America. But the cumulative production cost curve in the article is dominated by shale oil on the costliest (right hand side) of the chart.

I just treat shale oil as a "swing producer" because it is quick to react to market events (both on upside and downside). I am just saying it looks like shale oil can relatively quickly turnaround within a 2m bpd range based on that article. So a 60-65 per barrel price seems believable if other factors do not change (such as demand and/or other supply).

Unambiguous estimates of tight oil production seem to be resistant to a google search curiously enough. The link below seems to indicate US (only) tight oil production is 5.2m bpd.

http://www.channelnewsasia.com/news/busi...48196.html