It’s a Good Time to be a Fracker

http://www.trendmacro.com/system/files/reports/20170224TrendMacroWarren-DS.pdf
Donald L. Luskin
Michael Warren
Friday, February 24, 2017
Costs and regulations coming down, production going up – and oil is still headed for $65.
Strategic view: 

US crude production will increase by 430,000 barrels per day in 2017, year over year. This is a consistent equilibrium with our price target of $65, which some analysts wrongly believe will bring forth twice that production increase. Calls for oil to crash in the face of a new US glut are groundless. Almost all the rig gains implying production growth are in the Permian – some other plays are below subsistence. The touted efficiency gains per rig are real, but vastly exaggerated because statistics wrongly include fracklog drawdowns. The fracklog has already been reduced in 2016, so it isn’t a significant source of immediate supply anymore. New pipelines arriving this year are welcome, but they don’t go to the destinations that would fire up new demand for Bakken production. And as shale grows in the US production mix, depletion becomes a bigger hurdle. We think OPEC will extend its cuts for six months when it meets in May, even if that means losing market-share to the US.

Author Override: 
Michael Warren and Donald Luskin