Did OPEC Just Bail Out Struggling U.S. Oil Frackers? - oil frack

OPEC's Deal is Great for Struggling U.S. Frackers.

OPEC announced with great fanfare yesterday that its 14-member countries would cut oil production. The news boosted oil prices over 9%. It's up another 3% today to over $51/barrel. (Click here to read our take on the OPEC news.)

Lower oil prices since 2014 peaks have helped OPEC break the backs of the U.S. fracking industry. As you can see in the Chart of the Day below, domestic capital spending on oil-related projects ramped for many years into the 2014 peak. That bubble doesn't deflate in a year. It has fallen along with oil prices ever since.

However, U.S. production has shown resiliency in the $40-$50 range. Over the last two quarters, domestic frackers digested the macroeconomic reality of lower prices and have become more efficient. In other words, OPEC's announcement is seemingly a positive on the margin for domestic producers which could prolong this re-balancing process and the real physical market impact into 2017O

here's the reality for U.S. domestic Oil producers:

  • Domestic crude inventories are up +6.8% year-over-year.
  • The pace of the build has decelerated since the beginning of 2016 where crude inventories were tracking +30% year-over-year
  • At +6.8%, that still outpaces steady demand trends for refined products after putting in post-recession lows.

We'll be watching to see how this all shakes out heading into the 2017 spring refining season but OPEC may have thrown domestic oil producers a bone.

Did OPEC Just Bail Out Struggling U.S. Oil Frackers? - 12.01.16 EL Chart