Big Shale

In oil, over time, the big fish eventually eat the small fish. We saw this in the earliest days of oil when John D. Rockefeller bought out his competitors and now big oil has its eyes on shale and they won’t let it go. Big oil is going big in shale and that may be the beginning of the end of smaller shale producers, especially if Chevron Corp and Exxon Mobil Corp plans for US shale are any indications. Small shale producers led the way in shale patch, but many are struggling financially and may eventually be bought out and squeezed out by big oil. Big oil, that was slow to move on shale because of the issues with decline rates and their reliance on more expensive traditional projects, are now upping up their commitments to the new shale world. Yet Chevron Corp and Exxon Mobil Corp both are now betting big on shale, promising big increases in shale oil production. Chevron is projecting that they expect to raise production in the Permian basin by 600,000 barrels per day (bpd) by the end of next year. That would be a 59% increase above current production They also plan to add another 900,000 bpd by the end of 2023. Exxon Mobil, not to be left out, are projecting that their shale production will hit 1 million barrels per day in the Permian as early as 2024. Chevron Chief Executive Mike Wirth poked fun at Exxon by saying that “Our investors don’t need to wait several years for the story to come together.”

The question for oil traders really is whether the shale projections are going to come into place fast enough to avert a supply squeeze this summer. With OPEC cuts already in full force and refiners getting ready to come out of maintenance, it may be too little too late for this summer driving season. Besides, some are questioning the actual shale production numbers.

Still, oil is being weighed down by data from the American Petroleum Institute (API), that showed a larger-than-expected build of 7.29 million barrels. The builds were a reversal of last week’s big draw and may also be the API way of catching up with previous Energy Information Administration (EIA) reports to get the reports in line. Bad weather in the Houston Shipping Channel may have also impacted the numbers.

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