Two Massive US Oil Finds Have to Shake Up the Long Term

It seems to have slipped under the news wall of the never ending bickering of politics that just since the start of December two new oil field discoveries could put the US into the top few countries in the world in proven oil reserves.

A couple of weeks ago, BP announced they had discovered 1 billion barrels of oil and two new oil fields they didn't know they had in the Gulf of Mexico.  About a month before that the US Geological Survey announced a recent study of the Delaware Basin portion of Texas and New Mexico’s Permian Basin that showed it contained 46.3 billion barrels of oil, 281 trillion cubic feet of natural gas, and 20 billion barrels of natural gas liquids.  It's not clear that I can just add this 47.3 billion barrels of oil onto the 25 billion barrels that Wikipedia shows for known US oil reserves, but they seem like new discoveries so I can.

Although the USGS has previously assessed conventional oil and gas resources in the Permian Basin province, this is the first assessment of continuous resources in the Wolfcamp shale and Bone Spring Formation in the Delaware Basin portion of the Permian.

The sum of those, 72 billion barrels still falls short of earlier estimates of how much oil the US has.

It may surprise you that the International Energy Agency (IEA) says the US is the world's number one oil producer and 2019 will solidify that lead.  You see, OPEC, Russia and others can't make enough profit at current prices and they're cutting their production to push prices up.  Unintentionally, OPEC and Russia are helping American oil producers.

Alongside Russia and nine other nations, top oil exporter Saudi Arabia struck a deal with the rest of OPEC in December to keep 1.2 million barrels per day (b/d) off the market from the start of January.

“While the other two giants voluntarily cut output, the U.S., already the biggest liquids supplier, will reinforce its leadership as the world’s number one crude producer,” the Paris-based IEA said Friday.

“By the middle of the year, U.S. crude output will probably be more than the capacity of either Saudi Arabia or Russia.”

Back in 2015, I posted a story about a Saudi/OPEC plot to kill the American oil producers.  Since the Saudis can pump oil at $30/bbl, and we can't, they wagered they could kill off American production.  Funny thing about that: within three months it was basically failing.  I'm not saying they didn't cause hardship but American companies did what they're best at: they innovated.  They dropped their per barrel cost.

The IEA has previously touted the “growing influence ” of the U.S. in global oil markets, saying such a dramatic rise in crude output could soon challenge the market share of OPEC kingpin Saudi Arabia and non-OPEC heavyweight Russia.

I don't know if the prices in this graphic are valid, but take them as approximating the truth - the red price for Brent Crude is certainly wrong it was $62.59 at last market closing.  What it shows is the per barrel price these other countries need to keep their economies running.  The closing price Friday was $53/bbl. 

At the time this was written, it was said that Russia needed a price of $100/bbl to break even.

I suspect the exact price an oil company can sell at depends on the oil field.  Nevertheless, looking at these 2014 prices these countries need, one can see why they're in various degrees of bad shape.  I doubt that we'll see prices over $100 for a long time, because the higher that price goes, the more fields in the US open for production and act to keep the price down. 

Interesting times, no?