Monthly Archives: March 2023

The Great Oil Price Conundrum

Today  WTI (US) oil stands some $8 cheaper than OPEC or Brent oil (North Sea). A hedge fund manager is predicting $140/bbl with a year (double the price of WTI plus) and Goldman Sachs is predicting not to reach $100/bbl this year. No one knows.  But the EIA has just restated shale oil figures this year and it points to flat production since the first of the year and the rig count for oil keeps coming down.  Some increase in gas drilling does not seem justified on fundamentals as demand collapsed in a relatively mild winter (where?) and a lack of facilities and storage in Europe means we are at a bottleneck on selling LNG to Europe.

Truth is with all the restrictions on drilling Federal lands, drillers headed for private lands in W. Texas. Now the pipelines are full of natural gas – gas associated with the shale oils.  Most of these wells are not real “oil wells”. They produce a light crude oil and gas from the get go, but as production continues, the ratio between oil and gas begins to shift to more gas aka “associated” gas.

Previously they simply burned off the gas – a very wasteful process. States are tightening up and demanding they recycle the gas back down into the reservoir or sell it…and again the pipelines are full to the brim which is why natural gas prices went from $8 to $2 in a matter of weeks.

By year 2, these wells are almost 100% gas wells. The oil has been produced. And the big surge in production was largely due to all the “Ducks” – Drilled UnCompleted – wells that were never completed after drilling.  Now those wells are completed and the number of working rigs is too small to make up for the declining production. Meanwhile conventional vertical wells remain uneconomic with tubing and other metal essentials for producing, drilling, and piping gas remain sky high. One of the most profitable enterprises now is salvaging pipe and equipment off old wells that are played out. But most of that tubing and casing is designed for shallower wells and is not suited for the 15,000′ long lateral (horizontal) wells.

As our wells decline, we become more beholden to OPEC and other oil producing nations. This implies that there is a base pressure on prices up, regardless the economy.