OPEC's Balancing Act With U.S. Shale......

Post OPEC's landmark decision to cut 1.2 million bbl/d of production in December, an old problem threatens to stall the ongoing recovery in global oil prices. U.S. shale producers in the past few months have been quick to turn on the taps as oil prices continue to recover. Notably, the U.S. Energy Information Administration (EIA) projected yesterday that Permian Basin oil production will increase by 53,000 bbl/d month over month in February 2017. Further, recent acquisitions in the Permian Basin suggest that large energy producers are positioning themselves for a resurgence in oil and gas drilling in the Permian. First, Noble Energy recently announced the acquisition of Clayton Williams Energy to grow its presence in the Permian Basin. The acquisition includes 71,000 acres in the core of the Southern Delaware Basin, part of the Permian. Secondly, Exxon Mobil recently announced that is exchanging $5.6 billion in stock for approximately 275,000 acres of Fort Worth, which will double its holdings in the Permian Basin. The deal is being done with the Bass family, with the prospect of an additional $1 billion in 2020, dependent upon how the acreage performs.

​Given how nimble U.S. shale producers are at responding to any increase in oil prices, OPEC will likely have to be satisfied with a long term oil price that is probably closer to $60 per barrel as opposed to $100 per barrel in days past. That said, this most recent downturn in the energy industry has allowed many oil producing countries and public oil and gas producers to trim costs and become profitable in a $60 per barrel world. Time will tell if the energy industry can keep its costs in check and thrive under this new paradigm in oil.