No wonder the shroud and crude wins whenever it comes to Crude Oil...
Yeah OPEC weather you like it or not are winning with their decision of holding on and maintaining their production levels. U.S. horizontal drillers rigs are shutting down. In six weeks its was reported by Bloomberg that 209 rigs has shut down by the U.S. shale drillers. The total reported now stands at 1,366. This shut downs are expected to peak by mid year in June 2015. Hopefully crude oil price will stabilize by then.
However the contango effect - a relatively new 'exotic' term coined. A situation that futures crude oil price is higher than current spot crude oil price. It's argued that these hedgers are 'willing' to pay more for something in the future solely based on storage cost. So it's not indicative that crude oil price will pick up and head towards north again soon after June 2015. How far it's true! Crude oil are now stored in Ocean going super tankers are mind blowing.
Non OPEC producers has already cut production ie China, Malaysia etc. These numbers may not reduce the excess stockpile but should reduce further increases in global excess. Having said all this, on our plate is the scenario that's is certainly a certainty.
(a) Shake drillers has to shut down temporary.
(b) Shale drillers have to go back to their drawing board and look for technology (maybe Japanese techs will be handy here) to further reduce production cost of shale drilling to start pumping crude oil again.
(c) shale drillers cost per barrel must dip below US$ 40
This may happen and mostly likely within this decade but not the near future.
Good or good!
Till then & Cheerios
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