Headlamp – A thorn in OPEC’s side; Waiting is not a costless option.

A thorn in OPEC’s side. For U.S. shale drillers who have seen prices climb almost 50 percent in six months, it’s been largely a rig-less recovery, a conundrum for traders seeking to forecast the future. Normally, you’d expect the rigs to return to the field in significant numbers as producers flush with added cash looked to boost output. But the weekly Baker Hughes tally has stayed remarkably still. The reason: explorers are doing more with less, forcing traders to use a bigger toolbox of stats, metrics and gauges to track U.S. production that’s expected to top 10 million barrels a day as the year progresses. That includes everything from producer spending surveys to oilfield hiring reports, and even demand for the tiny grains of sand that prop open oil-bearing cracks. “A well that comes online in U.S. onshore today is dramatically different than one that came on five or 10 years ago,” Leo Mariani, an analyst who covers explorers and producers at NatAlliance Securities, said in a phone interview. “It’s just a different animal.” For the market, that means the country that’s become the world’s swing producer and a thorn in OPEC’s side is becoming a whole lot harder to read.

The price of oil has hit $70 a barrel for the first time since December 2014. Brent crude climbed after members of OPEC, the cartel of 14 oil-producing nations that accounts for 40% of the world’s output, said it would continue to limit supplies. The RAC, the motoring group, has warned that rising oil prices could lead to higher forecourt costs for motorists. However, the AA said that drivers would benefit if supermarkets resumed their petrol price war. Suhail al-Mazrouei, the UAE oil minister and OPEC president, said it was committed to limiting output until the end of the year. Last year, OPEC and other nations including Russia said they would extend a deal to cut production to help support oil prices that had fallen below $50 a barrel when the agreement was struck in 2016.

Waiting is not a costless option. Due to the decline in oil prices, the state has had to rely on savings to fund government for the last few years. The legislature has, however, not decided how it intends to fund government activity going forward. Given the size of the deficit and the paucity of non-oil sources, it seems that a draw from the Permanent fund is necessary. While understanding the potential short term effects from the imposition of taxes or government cuts seems to be fairly well understood, we try to quantify the potential investment losses stemming from delaying a decision that provides fiscal stability.

From today’s Washington Examiner, Daily on Energy:

HOUSE MAY NOT BE AS READY AS SENATE FOR BIG ENERGY BILL DEBATE: Murkowski also said she wants to reintroduce comprehensive energy legislation that ended up dying in 2016, but convincing the House to join the effort may take some work. “We’ve got to encourage our friends [in the House] that it’s time to do it,” Murkowski said. She said she thinks the leadership in the lower chamber recognizes that a bill needs to be passed, and she’s had conversations with Energy and Commerce Committee Chairman Greg Walden, R-Ore., and Natural Resources Committee Chairman Rob Bishop, R-Utah. Bishop is retiring in 2020 and maybe “kind of looking at how we shape some things then,” Murkowski said. “Not to say he wasn’t willing to do that before, but I think it does help to kind of crystallize some things and say, ‘OK, what do we want to be able to advance out of here?’” Murkowski failed to move a bill in 2016 when Bishop and then chairman of the energy committee, John Upton, R-Mich., decided to pull out of a conference committee on the big energy bill, saying they thought they could get better legislation under
Trump.

First Reads:

Why Oil Is Up But Rig Count Is Not
Bloomberg Markets, David Wethe, January‎ ‎11‎, ‎2018‎ ‎

Oil prices rise to hit four-year high of $70 a barrel
BBC News, January 11, 2018

Alaskanomics’s Blog: How Much is Uncertainty Costing the State of Alaska?
Alaska Business, Mouhcine Guettabi, January 9, 2018