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Wednesday, June 17, 2015

Analyst: Shale Drillers May Produce More Oil, But More Debt Will Come With It

From Seeking Alpha:
The Organization of Petroleum Exporting Countries (OPEC) met on June 5, and it's clear that the current trends in the global oil market will remain steady. 
First, OPEC - led by Saudi Arabia - will continue to pump out as much oil as possible. The cartel's production target of 30 million barrels, with an excess of 31 million barrels actually being pumped, remains. 
OPEC did say they would be open to reducing their quota, but only if Russia, the world's largest producer, cuts back… 
Fat chance of that! Russia has never agreed to production cuts, and isn't showing any flexibility now. U.S. shale oil producers are also continuing to pump out oil with no sign of stopping. In fact, they stand at the ready to add even more output. 
Over the spring, this strategy separated the weak from the strong as supply flourished and prices dropped. 
These days, the companies that survived, like EOG Resources (NYSE:EOG) and Pioneer Natural Resources (NYSE:PXD), have already given strong indications that they'll pump more oil if prices hold around $60 per barrel. 
Tom Pugh, a Commodities Economist at Capital Economics, told The Wall Street Journal that "U.S. supply could quickly rebound in response to the recent recovery in prices." 
Yes, shale firms will be able to turn the taps on again, thanks to the seemingly unending flow of capital from Wall Street - banks, institutional investors, and private equity are all lending. 
But, another word for at least some of this capital is debt, which may soon catch up with the domestic shale oil producers.
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