3d illustration of oil pump jacks and financial analytics charts and bars on sunset sky background. Concept of growing oil prices - bigstock--146027471

2018 Should Be All About Stability for the Oil Markets

As we move into 2018, the factors that determine future crude oil prices are setting up almost exactly as they did going into 2017. The single biggest puzzle piece went into place on November 30, when OPEC and Russia agreed to extend their joint export limitation agreement through the end of 2018. That move alone will have a tremendous stabilizing effect on the oil markets. But before we look at other factors that will influence oil prices for the year, let’s review where we were a year ago, and what happened during 2017 that led us to this point.

As we entered 2017, the price for WTI hovered in the $53 per barrel (BBL) range. OPEC had begun to implement its new export limitation agreement, and market signals — other than oil inventories in the U.S., which remained persistently high — were generally bullish.

As a result of the strengthening price for crude that took place throughout the fourth quarter of 2016, the large independent corporate producers who drill the overwhelming majority of shale wells in the U.S. put strong drilling budgets in place for the first half of 2017. As they began to execute on those budgets starting in January, the U.S. rig count began to rise rapidly. By the end of February, U.S. producers had activated about 200 additional drilling rigs, and they added another 100 by the end of April. As I wrote at the time for Forbes.com, producers who had held back their drilling plans as the crude price collapsed from 2014 through 2016 could not wait to get back to drilling at the first sign of stronger prices.

Of course, all that drilling of U.S. shale wells very predictably had an impact on the crude price; and that impact was to move it steadily back down to around $44/BBL by April, which is the month when these corporate producers typically plan their drilling budgets for the second half of the year. The upstream industry has always been and always will be price-sensitive. Thus, the significantly lower crude price in April 2016 led inevitably to scaled-down drilling budgets being implemented for the second half of 2017.

On June 19, I wrote a piece for Forbes.com in which I said the following:

“The mid-year review processes … are now coming to conclusions, and as a result of those reviews, we can expect the domestic rig count to level off and even perhaps decline slightly over the second half of 2017. Indeed, should the price for WTI fall below the $40/bbl level for any significant period of weeks, as some analysts are projecting, the rig count could fall fairly significantly, by ~100 rigs or slightly more. But the appetite within the mid-size and large independent producers to keep drilling remains strong after two solid years of drilling almost nothing other than leasehold obligations, so we should not expect a huge dip in the rig count and the job-losses that would entail. We should also expect to see the large monthly increases in overall U.S. oil production begin to tail off during the second half of this year.”

And that’s exactly what happened. The Baker Hughes oil rig count, which had reached above 760 during the first half of 2017, leveled off starting in July; and then slowly declined to around 730 in early November. Drilling activity remained fairly strong, but not as strong as during the first half of the year, enabling overall U.S. production to continue rising at a slower pace as well.

In the meantime, OPEC countries’ compliance with the export limitation agreement steadily increased as the year progressed; and by October, market analysts were starting to reach a general consensus that the global crude oil market had finally re-balanced after three years of a persistent glut of supply. This re-balancing of the market in turn has led to reductions in crude oil inventories not just in the U.S. but all over the world. In early November, reports of crude in floating storage were even beginning to fall, a strong indicator that the global glut had been resolved.

The end result of all that activity, combined with the extension of the OPEC-Russia export limitation agreement, was a steadily rising crude price throughout the fourth quarter of 2017. As we enter 2018, most analysts are generally bullish on the prospects for stronger crude prices to endure throughout the year.

But, you might ask, won’t U.S. shale producers just respond to this stronger price picture exactly as they did in 2017, with stronger drilling budgets and more and more newly activated drilling rigs? The answer to that question is most likely yes, but not exactly.

I know that may sound confusing, so let me clarify. Yes, we should expect shale drillers to respond to this stronger price picture as they did a year ago. Upstream companies will always respond to higher prices with more drilling. That is, after all, what they are in business to do.

But we should expect that response to be somewhat muted this year, due to a couple of significant factors:

Factor 1: Lower tension level. We have to remember that as we went into 2017, most producing companies were experiencing an intense pent-up internal desire to start drilling wells again, after having gone through 30 months of slashing drilling budgets in response to what had felt like an unending decline in crude prices. This pent-up desire to drill wells likely led to drilling budgets for the first half of 2017 that were higher than advisable or necessary for many of these companies.

Factor 2: Renewed focus on enhancing investor returns. As we entered 2017, companies were under tremendous pressure from creditors and the markets to begin increasing production and reserves again after the previous two years. This was another big reason why we saw a 40 percent increase in the number of active rigs during the first 10 weeks of the year. But as we moved into the third quarter of 2017, management teams at corporate producers found themselves under pressure to shift focus from increasing production to enhancing returns to investors. As a result, we saw more and more companies begin to shift capital away from drilling wells and into things like stock buy-back programs. This was a major driver of the declining rig count during August and September, and why that rig count moved only slightly upward as oil prices rose dramatically during October and November.

So, in other words, the difference we can expect between the first half of 2017 and that of 2018 is one of magnitude. Yes, shale producers’ drilling budgets will rise in 2018, but not as much as they did in early 2017. Yes, the rig count and drilling pace will increase during the first few months of this year, but not at the same rate they did in the first quarter of 2017.

And yes, this increased drilling activity in the U.S. will inevitably place downward pressure on the price for crude, but not the same level of pressure we saw in early 2017.

Bottom line, expect 2018 to follow a similar progression as we saw in 2017, but in a significantly more stable way. That should be good news for everyone.

 

About the author: David Blackmon is the Associate Editor for Oil and Gas for SHALE Magazine. He previously spent 37 years in the oil and natural gas industry in a variety of roles, the last 22 years engaged in public policy issues at the state and national levels. Contact David Blackmon at david@shalemag.com.

 

artemegorov/bigstock.com

Read an unlimited number of articles by signing up for a free account:
Terms and Conditions

Agreement between User and www.shalemag.com
Welcome to www.shalemag.com. The www.shalemag.com website (the “Site”) is comprised of various web pages operated by SHALE Oil & Gas Business Magazine (“SHALE Magazine”). www.shalemag.com is offered to you conditioned on your acceptance without modification of the terms, conditions, and notices contained herein (the “Terms”). Your use of www.shalemag.com constitutes your agreement to all such Terms. Please read these terms carefully, and keep a copy of them for your reference.

www.shalemag.com is a News and Information Site.

Shale Oil & Gas Business Magazine is a publication that showcases the dynamic impact of the energy industry. The mission of SHALE is to promote economic growth and business opportunities and to further the general understanding of how the energy industry contributes to the economic well-being of Texas and the United States as a whole. Shale’s distribution includes industry leaders and businesses, service workers, entrepreneurs and the public at large.

Privacy
Your use of www.shalemag.com is subject to SHALE Magazine’s Privacy Policy. Please review our Privacy Policy, which also governs the Site and informs users of our data collection practices.

Electronic Communications
Visiting www.shalemag.com or sending emails to SHALE Magazine constitutes electronic communications. You consent to receive electronic communications and you agree that all agreements, notices, disclosures and other communications that we provide to you electronically, via email and on the Site, satisfy any legal requirement that such communications be in writing.

Your Account
If you use this site, you are responsible for maintaining the confidentiality of your account and password and for restricting access to your computer, and you agree to accept responsibility for all activities that occur under your account or password. You may not assign or otherwise transfer your account to any other person or entity. You acknowledge that SHALE Magazine is not responsible for third party access to your account that results from theft or misappropriation of your account. SHALE Magazine and its associates reserve the right to refuse or cancel service, terminate accounts, or remove or edit content in our sole discretion.

Children Under Thirteen
SHALE Magazine does not knowingly collect, either online or offline, personal information from persons under the age of thirteen. If you are under 18, you may use www.shalemag.com only with permission of a parent or guardian.

Cancellation/Refund Policy
You may cancel your subscription at any time. Any cancellations made after 14 days of service will not qualify for a refund. Please contact us at kym@shalemag.com with any questions.

Links to Third Party Sites/Third Party Services
www.shalemag.com may contain links to other websites (“Linked Sites”). The Linked Sites are not under the control of SHALE Magazine and SHALE Magazine is not responsible for the contents of any Linked Site, including without limitation any link contained in a Linked Site, or any changes or updates to a Linked Site. SHALE Magazine is providing these links to you only as a convenience, and the inclusion of any link does not imply endorsement by SHALE Magazine of the site or any association with its operators.

Certain services made available via www.shalemag.com are delivered by third party sites and organizations. By using any product, service or functionality originating from the www.shalemag.com domain, you hereby acknowledge and consent that SHALE Magazine may share such information and data with any third party with whom SHALE Magazine has a contractual relationship to provide the requested product, service or functionality on behalf of www.shalemag.com users and customers.

No Unlawful or Prohibited Use/Intellectual Property
You are granted a non-exclusive, non-transferable, revocable license to access and use www.shalemag.com strictly in accordance with these terms of use. As a condition of your use of the Site, you warrant to SHALE Magazine that you will not use the Site for any purpose that is unlawful or prohibited by these Terms. You may not use the Site in any manner which could damage, disable, overburden, or impair the Site or interfere with any other party’s use and enjoyment of the Site. You may not obtain or attempt to obtain any materials or information through any means not intentionally made available or provided for through the Site.

All content included as part of the Service, such as text, graphics, logos, images, as well as the compilation thereof, and any software used on the Site, is the property of SHALE Magazine or its suppliers and protected by copyright and other laws that protect intellectual property and proprietary rights. You agree to observe and abide by all copyright and other proprietary notices, legends or other restrictions contained in any such content and will not make any changes thereto.

You will not modify, publish, transmit, reverse engineer, participate in the transfer or sale, create derivative works, or in any way exploit any of the content, in whole or in part, found on the Site. SHALE Magazine content is not for resale. Your use of the Site does not entitle you to make any unauthorized use of any protected content, and in particular you will not delete or alter any proprietary rights or attribution notices in any content. You will use protected content solely for your personal use, and will make no other use of the content without the express written permission of SHALE Magazine and the copyright owner. You agree that you do not acquire any ownership rights in any protected content. We do not grant you any licenses, express or implied, to the intellectual property of SHALE Magazine or our licensors except as expressly authorized by these Terms.

Use of Communication Services
The Site may contain bulletin board services, chat areas, news groups, forums, communities, personal web pages, calendars, and/or other message or communication facilities designed to enable you to communicate with the public at large or with a group (collectively, “Communication Services”). You agree to use the Communication Services only to post, send and receive messages and material that are proper and related to the particular Communication Service.

By way of example, and not as a limitation, you agree that when using a Communication Service, you will not: defame, abuse, harass, stalk, threaten or otherwise violate the legal rights (such as rights of privacy and publicity) of others; publish, post, upload, distribute or disseminate any inappropriate, profane, defamatory, infringing, obscene, indecent or unlawful topic, name, material or information; upload files that contain software or other material protected by intellectual property laws (or by rights of privacy of publicity) unless you own or control the rights thereto or have received all necessary consents; upload files that contain viruses, corrupted files, or any other similar software or programs that may damage the operation of another’s computer; advertise or offer to sell or buy any goods or services for any business purpose, unless such Communication Service specifically allows such messages; conduct or forward surveys, contests, pyramid schemes or chain letters; download any file posted by another user of a Communication Service that you know, or reasonably should know, cannot be legally distributed in such manner; falsify or delete any author attributions, legal or other proper notices or proprietary designations or labels of the origin or source of software or other material contained in a file that is uploaded; restrict or inhibit any other user from using and enjoying the Communication Services; violate any code of conduct or other guidelines which may be applicable for any particular Communication Service; harvest or otherwise collect information about others, including e-mail addresses, without their consent; violate any applicable laws or regulations.

SHALE Magazine has no obligation to monitor the Communication Services. However, SHALE Magazine reserves the right to review materials posted to a Communication Service and to remove any materials in its sole discretion. SHALE Magazine reserves the right to terminate your access to any or all of the Communication Services at any time without notice for any reason whatsoever.

SHALE Magazine reserves the right at all times to disclose any information as necessary to satisfy any applicable law, regulation, legal process or governmental request, or to edit, refuse to post or to remove any information or materials, in whole or in part, in SHALE Magazine’s sole discretion.

Always use caution when giving out any personally identifying information about yourself or your children in any Communication Service. SHALE Magazine does not control or endorse the content, messages or information found in any Communication Service and, therefore, SHALE Magazine specifically disclaims any liability with regard to the Communication Services and any actions resulting from your participation in any Communication Service. Managers and hosts are not authorized SHALE Magazine spokespersons, and their views do not necessarily reflect those of SHALE Magazine.

Materials uploaded to a Communication Service may be subject to posted limitations on usage, reproduction and/or dissemination. You are responsible for adhering to such limitations if you upload the materials.

Materials Provided to www.shalemag.com or Posted on Any SHALE Magazine Web Page
SHALE Magazine does not claim ownership of the materials you provide to www.shalemag.com (including feedback and suggestions) or post, upload, input or submit to any SHALE Magazine Site or our associated services (collectively “Submissions”). However, by posting, uploading, inputting, providing or submitting your Submission you are granting SHALE Magazine, our affiliated companies and necessary sublicensees permission to use your Submission in connection with the operation of their Internet businesses including, without limitation, the rights to: copy, distribute, transmit, publicly display, publicly perform, reproduce, edit, translate and reformat your Submission; and to publish your name in connection with your Submission.

No compensation will be paid with respect to the use of your Submission, as provided herein. SHALE Magazine is under no obligation to post or use any Submission you may provide and may remove any Submission at any time in SHALE Magazine’s sole discretion.

By posting, uploading, inputting, providing or submitting your Submission you warrant and represent that you own or otherwise control all of the rights to your Submission as described in this section including, without limitation, all the rights necessary for you to provide, post, upload, input or submit the Submissions.

Third Party Accounts
You will be able to connect your SHALE Magazine account to third party accounts. By connecting your SHALE Magazine account to your third party account, you acknowledge and agree that you are consenting to the continuous release of information about you to others (in accordance with your privacy settings on those third party sites). If you do not want information about you to be shared in this manner, do not use this feature.

International Users
The Service is controlled, operated and administered by SHALE Magazine from our offices within the USA. If you access the Service from a location outside the USA, you are responsible for compliance with all local laws. You agree that you will not use the SHALE Magazine Content accessed through www.shalemag.com in any country or in any manner prohibited by any applicable laws, restrictions or regulations.

Indemnification
You agree to indemnify, defend and hold harmless SHALE Magazine, its officers, directors, employees, agents and third parties, for any losses, costs, liabilities and expenses (including reasonable attorney’s fees) relating to or arising out of your use of or inability to use the Site or services, any user postings made by you, your violation of any terms of this Agreement or your violation of any rights of a third party, or your violation of any applicable laws, rules or regulations. SHALE Magazine reserves the right, at its own cost, to assume the exclusive defense and control of any matter otherwise subject to indemnification by you, in which event you will fully cooperate with SHALE Magazine in asserting any available defenses.

Arbitration
In the event the parties are not able to resolve any dispute between them arising out of or concerning these Terms and Conditions, or any provisions hereof, whether in contract, tort, or otherwise at law or in equity for damages or any other relief, then such dispute shall be resolved only by final and binding arbitration pursuant to the Federal Arbitration Act, conducted by a single neutral arbitrator and administered by the American Arbitration Association, or a similar arbitration service selected by the parties, in a location mutually agreed upon by the parties. The arbitrator’s award shall be final, and judgment may be entered upon it in any court having jurisdiction. In the event that any legal or equitable action, proceeding or arbitration arises out of or concerns these Terms and Conditions, the prevailing party shall be entitled to recover its costs and reasonable attorney’s fees. The parties agree to arbitrate all disputes and claims in regards to these Terms and Conditions or any disputes arising as a result of these Terms and Conditions, whether directly or indirectly, including Tort claims that are a result of these Terms and Conditions. The parties agree that the Federal Arbitration Act governs the interpretation and enforcement of this provision. The entire dispute, including the scope and enforceability of this arbitration provision shall be determined by the Arbitrator. This arbitration provision shall survive the termination of these Terms and Conditions.

Class Action Waiver
Any arbitration under these Terms and Conditions will take place on an individual basis; class arbitrations and class/representative/collective actions are not permitted. THE PARTIES AGREE THAT A PARTY MAY BRING CLAIMS AGAINST THE OTHER ONLY IN EACH’S INDIVIDUAL CAPACITY, AND NOT AS A PLAINTIFF OR CLASS MEMBER IN ANY PUTATIVE CLASS, COLLECTIVE AND/ OR REPRESENTATIVE PROCEEDING, SUCH AS IN THE FORM OF A PRIVATE ATTORNEY GENERAL ACTION AGAINST THE OTHER. Further, unless both you and SHALE Magazine agree otherwise, the arbitrator may not consolidate more than one person’s claims, and may not otherwise preside over any form of a representative or class proceeding.

Liability Disclaimer
THE INFORMATION, SOFTWARE, PRODUCTS, AND SERVICES INCLUDED IN OR AVAILABLE THROUGH THE SITE MAY INCLUDE INACCURACIES OR TYPOGRAPHICAL ERRORS. CHANGES ARE PERIODICALLY ADDED TO THE INFORMATION HEREIN. SHALE OIL & GAS BUSINESS MAGAZINE AND/OR ITS SUPPLIERS MAY MAKE IMPROVEMENTS AND/OR CHANGES IN THE SITE AT ANY TIME.

SHALE OIL & GAS BUSINESS MAGAZINE AND/OR ITS SUPPLIERS MAKE NO REPRESENTATIONS ABOUT THE SUITABILITY, RELIABILITY, AVAILABILITY, TIMELINESS, AND ACCURACY OF THE INFORMATION, SOFTWARE, PRODUCTS, SERVICES AND RELATED GRAPHICS CONTAINED ON THE SITE FOR ANY PURPOSE. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, ALL SUCH INFORMATION, SOFTWARE, PRODUCTS, SERVICES AND RELATED GRAPHICS ARE PROVIDED “AS IS” WITHOUT WARRANTY OR CONDITION OF ANY KIND. SHALE OIL & GAS BUSINESS MAGAZINE AND/OR ITS SUPPLIERS HEREBY DISCLAIM ALL WARRANTIES AND CONDITIONS WITH REGARD TO THIS INFORMATION, SOFTWARE, PRODUCTS, SERVICES AND RELATED GRAPHICS, INCLUDING ALL IMPLIED WARRANTIES OR CONDITIONS OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE AND NON-INFRINGEMENT.

TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, IN NO EVENT SHALL SHALE OIL & GAS BUSINESS MAGAZINE AND/OR ITS SUPPLIERS BE LIABLE FOR ANY DIRECT, INDIRECT, PUNITIVE, INCIDENTAL, SPECIAL, CONSEQUENTIAL DAMAGES OR ANY DAMAGES WHATSOEVER INCLUDING, WITHOUT LIMITATION, DAMAGES FOR LOSS OF USE, DATA OR PROFITS, ARISING OUT OF OR IN ANY WAY CONNECTED WITH THE USE OR PERFORMANCE OF THE SITE, WITH THE DELAY OR INABILITY TO USE THE SITE OR RELATED SERVICES, THE PROVISION OF OR FAILURE TO PROVIDE SERVICES, OR FOR ANY INFORMATION, SOFTWARE, PRODUCTS, SERVICES AND RELATED GRAPHICS OBTAINED THROUGH THE SITE, OR OTHERWISE ARISING OUT OF THE USE OF THE SITE, WHETHER BASED ON CONTRACT, TORT, NEGLIGENCE, STRICT LIABILITY OR OTHERWISE, EVEN IF SHALE OIL & GAS BUSINESS MAGAZINE OR ANY OF ITS SUPPLIERS HAS BEEN ADVISED OF THE POSSIBILITY OF DAMAGES. BECAUSE SOME STATES/JURISDICTIONS DO NOT ALLOW THE EXCLUSION OR LIMITATION OF LIABILITY FOR CONSEQUENTIAL OR INCIDENTAL DAMAGES, THE ABOVE LIMITATION MAY NOT APPLY TO YOU. IF YOU ARE DISSATISFIED WITH ANY PORTION OF THE SITE, OR WITH ANY OF THESE TERMS OF USE, YOUR SOLE AND EXCLUSIVE REMEDY IS TO DISCONTINUE USING THE SITE.

Termination/Access Restriction
SHALE Magazine reserves the right, in its sole discretion, to terminate your access to the Site and the related services or any portion thereof at any time, without notice. To the maximum extent permitted by law, this agreement is governed by the laws of the State of Texas and you hereby consent to the exclusive jurisdiction and venue of courts in Texas in all disputes arising out of or relating to the use of the Site. Use of the Site is unauthorized in any jurisdiction that does not give effect to all provisions of these Terms, including, without limitation, this section.

You agree that no joint venture, partnership, employment, or agency relationship exists between you and SHALE Magazine as a result of this agreement or use of the Site. SHALE Magazine’s performance of this agreement is subject to existing laws and legal process, and nothing contained in this agreement is in derogation of SHALE Magazine’s right to comply with governmental, court and law enforcement requests or requirements relating to your use of the Site or information provided to or gathered by SHALE Magazine with respect to such use. If any part of this agreement is determined to be invalid or unenforceable pursuant to applicable law including, but not limited to, the warranty disclaimers and liability limitations set forth above, then the invalid or unenforceable provision will be deemed superseded by a valid, enforceable provision that most closely matches the intent of the original provision and the remainder of the agreement shall continue in effect.

Unless otherwise specified herein, this agreement constitutes the entire agreement between the user and SHALE Magazine with respect to the Site and it supersedes all prior or contemporaneous communications and proposals, whether electronic, oral or written, between the user and SHALE Magazine with respect to the Site. A printed version of this agreement and of any notice given in electronic form shall be admissible in judicial or administrative proceedings based upon or relating to this agreement to the same extent and subject to the same conditions as other business documents and records originally generated and maintained in printed form. It is the express wish to the parties that this agreement and all related documents be written in English.

Changes to Terms
SHALE Magazine reserves the right, in its sole discretion, to change the Terms under which www.shalemag.com is offered. The most current version of the Terms will supersede all previous versions. SHALE Magazine encourages you to periodically review the Terms to stay informed of our updates.

Contact Us
SHALE Magazine welcomes your questions or comments regarding the Terms:

SHALE Oil & Gas Business Magazine

5150 Broadway #493

San Antonio, TX 78209

Email Address:
kym@shalemag.com

Telephone number:
(210) 240-7188

Effective as of November 27, 2017
I agree with the Terms & Conditions

Leave a Reply

Your email address will not be published. Required fields are marked *

Share via