U.S. Winning Oil War Against Saudi Arabia

...“The EIA has global oil demand in 2020 and beyond being met with increased supplies from a region of the world stuck in a multi-decade crisis that is likely to get much worse before it ever gets better. Supply from the short-cycle U.S. oil market is required to balance the global crude market at a rate where U.S. shale should remain a growth industry.”...

There have been several key developments that set the stage for the evolutionary phase that the world has now entered:

1) development of mature fracking technologies for oil and gas shale that have made previously uneconomic reserves economic, and development of other unconventional sources like tar sands and heavy oils

2) the global economic melt-down of 2008 that reduced the global growth rate and thus oil demand, instigated very low interest rates, and slowed-down Chinese economic growth

3) the rapid urbanization of developing countries that is increasing oil demand faster than the Middle East can supply oil

This last point is key. Today, spare capacity is less than 2 million barrels per day compared to the 1980’s oil glut when spare capacity was over 15 million barrels per day. This means that small changes in supply or demand can cause large changes in the price of oil. This leads to significant price volatility, which should only increase in the coming years....

...Individual geologic formations and well completion methods vary widely as to the ease of production, particularly for shale. Take, for example, the Bakken formation in North Dakota that has an overall break-even point of about $40/bbl. However, in McKenzie County, the break-even point is only $28/bbl, while Divide County had a break-even point of $85/bbl (OGJ).

Beware of break-even and marginal-cost analyses
http://www.ogj.com/articles/uogr/print/volume-3/issue-1/comment-beware-of-break-even-and-marginal-cost-analyses.html

Shale oil and gas productivity and costs vary dramatically among the different areas of a shale formation, and the difference between owning the best acreage or the worst is what makes winners and losers.

Clearly, the difference in productivity of each area of a shale formation reveals striking break-even differences across the same formation (on a micro-level, it also implies that wells drilled in a certain area have a bigger productivity than others).

Thus, to have a sound assessment of how unprofitable a shale formation could become below a given price level, it is essential to have a clear understanding of the break-even point of each area and to weigh it against the production of that specific area.

This kind of evaluation is also necessary to obtain a correct view of the marginal costs of a given formation.

For example, McKenzie County, ND, is the most prolific production area of the Bakken-Three Forks formation, with an average output of almost 350,000 b/d, more than one third of total Bakken production as of August 2014.

The McKenzie break-even point, including a 10% internal rate of return, is $28/bbl. Conversely, in August, Divide County, ND, produced slightly more than 35,000 b/d in August, but with a break-even point of $85/bbl.

Overall, 80% of Bakken oil now has a break-even point below $42/bbl.1

Finding these numbers is hard, so most analysts resort to oversimplified models and use input data that do not weigh specific break-even points against specific production levels. This creates misleading indications about both.

I do not understand, for example, how those claiming that the average break-even point of Bakken oil is higher than $70/bbl have calculated that number. In any case, the notion of average may be highly misleading when referred to shale.

What’s more, falling oil prices are prompting oil companies to ask service companies (those making fracking jobs and other related services) to review downward their tariffs, adding the threat of slashing their demand for services.

From early insights, these kinds of requests seem to be destined to succeed, implying a general decrease of cost for shale activity in the near future.

As to marginal costs, while it is perhaps formally correct to say that the marginal cost of production in the Bakken has a break-even point of $85/bbl, it is very misleading not to point out that this number refers to less than 3% of overall Bakken oil production.

Editor’s Note: This is an excerpt from Leonard Maugeri’s Global Energy Trends No. 2, Nov. 19, 2014.

Under the Bretton Woods system, the external values of foreign currencies were fixed in relation to the U.S. dollar, whose value was in turn expressed in gold at the congressionally-set price of $35 per ounce.

By the 1960s, a surplus of U.S. dollars caused by foreign aid, military spending, and foreign investment threatened this system, as the United States did not have enough gold to cover the volume of dollars in worldwide circulation at the rate of $35 per ounce; as a result, the dollar was overvalued.

Presidents John F. Kennedy and Lyndon B. Johnson adopted a series of measures to support the dollar and sustain Bretton Woods: foreign investment disincentives; restrictions on foreign lending; efforts to stem the official outflow of dollars; international monetary reform; and cooperation with other countries.

Nothing worked....

https://history.state.gov/milestones/1969-1976/nixon-shock

On August 13, 1971, Nixon convened a meeting of his top economic advisers...

After two days of talks, on the evening of August 15, Nixon announced his New Economic Policy in an address to the nation...

To achieve the first two goals, he proposed tax cuts and a 90-day freeze on prices and wages; to achieve the third, Nixon directed the suspension of the dollar’s convertibility into gold....

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