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Oil guru says US shale revolution is ‘temporary’


The oil trader known by rivals as “God” predicts the US shale revolution will only “temporarily” boost production and oil prices will remain high, siding with Saudi Arabia and the Opec cartel in a debate gripping the energy market.

Andy Hall, whose lucrative bets on oil prices earned him a $100m salary at Citigroup in the 2000s, told investors that the rapid decline in output suffered by shale wells is “likely [to] mean that the bounty afforded by shale resources is temporary”.

Surging US oil production is casting a long shadow as Opec ministers gather in Vienna for their twice yearly meeting this week. The International Energy Agency forecasts that North America, long Opec’s largest customer, will become a net exporter of oil by 2030, thanks to the flood of new shale production.

The consensus in the industry is that shale resources could push long-term oil prices down, threatening Opec. Dennis Gartman, a pundit followed by many investors, told CNBC this week: “If there were a way to sell Opec short, I would try to find a way to sell Opec short.”

But Saudi Arabia has taken the view that the shale revolution does not endanger the kingdom or Opec. And Mr Hall, who made a fortune betting that long-term oil prices would rise from $18 to $100 during the 2000s, has become the most senior industry executive to agree.

The trader told investors in his $4.5bn Astenbeck hedge fund, which he runs alongside the Phibro commodity trading house, that while output from shale oil wells is initially prolific, production declines rapidly because each well only taps a single pool of rock-trapped oil, rather than an entire reservoir.

In a letter to investors seen by the Financial Times, Mr Hall said that makes it “impossible to maintain production . . . without constant new wells being drilled [which would] require high oil prices”.

“We read almost daily of new oil discoveries and perhaps this leads to complacency among the lay public,” he added.

Mr Hall also revealed a bullish bet on Brent December 2015 oil futures, currently trading at $94.60. “We continue to hold our longer dated [oil] position with conviction,” he said.

As long as demand continues to grow fast enough to absorb shale output . . .Opec does not need to worry – Opec delegate

“Shale oil and gas boom has been an incredible phenomenon and it would be ridiculous to argue that it is not having a transformational impact on the oil and gas industry,” Mr Hall said. But he immediately warned: “We feel that some of the wilder claims regarding its future prospects need to be tempered.”

Opec ministers are set to devote a large portion of their Vienna meeting on Friday to the impact of the US shale boom. While the rise in shale production is not hurting Saudi Arabia and its fellow Gulf states, other Opec members such as Nigeria and Angola have seen sharp declines in exports to the US.

The cartel is nonetheless set to keep its production target level unchanged at 30m b/d, Opec delegates said on Wednesday. With oil prices hovering above $100 a barrel, even the most hawkish members of the group, which pumps roughly 40 per cent of the world’s oil, have so far refrained from calling for output cuts.

“As long as demand continues to grow fast enough to absorb shale output and prices stay around $100 a barrel, Opec does not need to worry,” one delegate said.


14 Comments on "Oil guru says US shale revolution is ‘temporary’"

  1. BillT on Sun, 2nd Jun 2013 1:39 pm 

    OPEC doesn’t need to worry. AT best, fraking will just cut a few million barrels per day off of current imports. But, prices will stay high as oil is a world commodity and is priced by world demands, now SUV owner’s dreams.

  2. Arthur on Sun, 2nd Jun 2013 2:18 pm 

    Andy Hall maybe had a phone call with his brother Charles 😉

    That’s the Andy.

  3. dave thompson on Sun, 2nd Jun 2013 2:30 pm 

    How soon will Time magazine have this article on the cover?

  4. Norm on Sun, 2nd Jun 2013 2:43 pm 

    There is no reason to worry because Lord Jesus is refilling the oil wells this very moment. He created those oil wells and put the oil into them. So He can do it again.

  5. c8 on Sun, 2nd Jun 2013 3:26 pm 

    the interesting question is: when the shale begins to collapse overall- how rapid will the decline be? Could be quite a sudden price shock at the pump, the rapid kind that sets off massive consumer confidence loss and purchase pullback.

  6. Feemer on Sun, 2nd Jun 2013 3:43 pm 

    I always laugh when I hear people say the US will become oil independent and will export oil. People only look at the amount of oil in the shale formations, rather than how much is recoverable, depletion rates, energy return on energy invested, and at what price is it profitable. By 2020-2025 the shale boom will be dead, and north dakota will just be an empty wasteland of poisoned water. But the next 7 years should show some considerable growth in the economy and some cheaper energy.

  7. Juan Pueblo on Sun, 2nd Jun 2013 3:43 pm 

    Those shale oil well decline rates are hard to argue with for anyone that is good with math and physics 😉
    I predict that as this boom busts, they will start the “Arctic Oil Boom”.

  8. monsta666 on Sun, 2nd Jun 2013 4:12 pm 

    It is possible that the US maybe energy “independent” by the year 2030. World trade may have collapsed by then due to a lack of oil. In such a case the US could only depend on what oil was still coming out of its own shores.

  9. shortonoil on Sun, 2nd Jun 2013 4:37 pm 

    The present production of 900K barrels per day of shale oil has taken more than five years to bring on line, and has cost $331.77 billion in initial investment. That 900Kb/d production is less than 1/3 the annual decline of the world’s conventional fields.

    What kind of idiot would not be long oil on a 2018 contract?

  10. rollin on Sun, 2nd Jun 2013 5:47 pm 

    The US added almost 1 million b/d in output last year. I predict another half million this year and even less next year.
    They have to multiple frack the sweet spots or move to less prolific areas in the continuous field, so diminishing returns are coming up fast. Add to that the high falloff rate, causing a large number of new wells to be drilled just to keep rate and the perfect recipe for depletion is set in motion.

  11. DC on Sun, 2nd Jun 2013 6:37 pm 

    US oil production is not ‘surging’, but the US media sure love the term dont they? Its more like a blip-than a surge. And its a temporary blip at best. I supposed the US could, strip mine the entire country to boost ‘production’, but if amerikans are willinh to destroy there own country-and not just other peoples country to keep suburbia and wall-mart going, I say let them. Frak rigs showing up in suburbia and across from schools now are slowly waking the US sheeple as to how things really stand. But it will still take time. As in, amerikans have to have disaster at there own doorstep before they are stirred to some sort of action.

  12. J-Gav on Sun, 2nd Jun 2013 8:32 pm 

    Kind of a no-brainer, really, isn’t it? The fracking mini-bonanza was supposed to last forever? No, just until the next quick-fix, whatever that may be (Juan Pueblo could be right) but none of it will last for long.

  13. Plantagenet on Mon, 3rd Jun 2013 1:30 am 

    People seem amazed at the idea that fracked wells decline rapidly. This has been known for a long time. But does that mean that fracking will stop anytime soon? NO, because the areal extent of shales is huge—-the Bakken alone has up to 40,000 sites where wells can be drilled and frakked and oil produced…an effort that will take decades. And when that is done there is another oil-bearing shale below the Bakken….and another oil-bearing shale unit below that. People who expect frakking to stop tomorrow are deluding themselves.

  14. CriticalMass on Mon, 3rd Jun 2013 7:09 pm 

    Laughed so hard at Norm’s comment it almost looked like I wasn’t working right there 🙂

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