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Title : Reality Sucks -- Bloomberg -- May 11, 2017
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Reality Sucks -- Bloomberg -- May 11, 2017

Saudi Arabia facing the inevitable:

• lower for longer
• possible oversupply of oil in 2018
• US production is rising faster than anyone predicted
• OPEC and its allies are digging in for a long war of attrition against shale
• Riyadh initially thought US could not recover quickly enough (Middle Ages mentality vs 21st century technology)
• shale has defied the naysayers
• by the time OPEC meets in Vienna later this month, US production will be approaching 9.5 million bopd, higher than in November when OPEC started a two-year price war (the first trillion-dollar mistake)
• the rebound has been powered by turbocharging output in the Permian 
• cartel's cut (wink,wink): 1.2 million bopd
• shale production: has risen 600,000 bopd
• Saudi now looking to extend cuts beyond 2017, well into 2018
• OPEC's own monthly report suggested that production from non-members would rise 64% faster than previously forecast (Middle Ages mentality vs 21st century technology, entrepreneurial spirit, and hedging)

But look at this:

• analysts now suggest the real battle will be in 2018, when US production could start flooding the global market as it did in 2014 (by 2018 a lot of new off-shore production will be coming on line; the Permian will be hitting its stride)
• "the US is set up for strong supply growth next year"
• rig spree + efficiency gains
• break-even prices for some shale producers: $20

Bottom line:

"The supply and demand balance for 2018 looks very bad,” said Fared Mohamedi, chief economist at consultant The Rapidan Group in Washington. “That’s when the big fight is going to happen."

All I know is that right now, the US has about 530 million bbls of crude oil in storage and 32 days of supply; historically, the US has had about 350 million bbls of crude oil in storage and 21 days of supply.

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