Breaking News
Ad-Free Version. Upgrade your experience. Save up to 40% More details

The Bloom Is Coming Off The Shale Patch

By Phil FlynnCommoditiesAug 01, 2017 10:46AM ET
The Bloom Is Coming Off The Shale Patch
By Phil Flynn   |  Aug 01, 2017 10:46AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items

Oil prices cap off their best monthly gain since April of 2016 as geo-political risk is rising in Venezuela and a report from the Energy Information Administration (EIA) saying that we are not producing as much oil as we thought we were.

The limitaions of shale-oil production are being exposed as it is becoming clear to the market that light shale oil cannot totally replace Venezuelan heavy oil and the EIA reduced US production estimates for May by a substantial 150,000 barrels a day from a previous estimate of 9.32 million barrels a day to just 9.17 million barrels a day. The reduction suggests that on shore oil production since September came in at only 350,000 barrels per day which is just a third of what was expected by the market. This explains in part why we have been seeing these massive draws in the US and now global supply.

This comes as shale producers are pulling back on investment. While oil prices had their best month since 2016, rig operators added only 10 new oil rigs, the lowest since May of 2016. Many shale oil drillers are deep in debt and many can’t even afford to hedge their production going forward. Many also must repay billions in debt payments in 2017 and 2018 on their sub-investment grade bonds making it harder for them to ramp up production this year and raising the possibility of more shale bankruptcies. We wrote about this months ago and now others are picking up on this theme. We wrote an article on the Fox Business Network website about this and it is covered in my “Summer Solstice” webinar where we felt that mid-summer for oil was the low of the year and that we expected that oil would double from those mid-summer prices.

Shale oil cannot replace heavy Venezuelan crude. Venezuela is the third largest supplier of oil imports to the U.S. accounting for 10% of US oil imports. US Gulf Coast refiners rare geared to Venezuela’s unique brand of heavy, tar-like crude. Even as refiners have adapted to less Venezuelan crude, it wlll impact US gas prices. So far, the sanctions have only targeted Venezuelan President Nicolás Maduro, after an election that the Trump Administration said was pointing toward dictatorship. Shale oil production can’t replace OPEC and non-OPEC cuts and the falling supply is clear evidence.

We are also have seen a reversal in gasoline demand numbers blasting the myth that low gas prices are always good for the consumer. We should educate the consumer that too low of a price for gasoline at times means that the economy is suffering. Robust demand and slightly higher prices are good as it means more Americans are working and we can have a thriving energy industry that has already revitalized many towns and cities in this country.

The Bloom Is Coming Off The Shale Patch

Related Articles

Phil Flynn
Energy Report: Build Back Big Oil Better By Phil Flynn - Jul 30, 2021

It must be frustrating for the Biden administration that all of the policies that they put in place to try to reduce America's dependence on oil and gas are helping build back Big...

The Bloom Is Coming Off The Shale Patch

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (1)
Trent Paglia
Trent Paglia Aug 02, 2017 8:40AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Did the government release more oil from the reserve Phil.. . Trent
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email