The global collapse of crude prices has fostered plenty of conflicting opinions and misconceptions.
Dan Doyle, president of fracking concern Reliance Well Services, said the media is responsible for creating some of the myths around the meltdown in crude and as a result investors are confused. He listed some of the misperceptions in an article for
Oilprice.com.
Doyle argued it is bogus to believe that advances in fracking have caused an oversupply of oil, as some have suggested. "The 600 pound gorilla in the room is competition. Fracking has gotten competitive, damned competitive," he wrote.
Another misconception is that Goldman Sachs is an accurate prognosticator when it comes to forecasting oil prices, he said.
"They are notoriously wrong when forecasting tops and bottoms. What they are good at is jumping on the band wagon and stoking fires. Their forecasting always seems to be done through a rear view mirror and their calls for peaks and troughs are always overdone."
Doyle said another mistaken belief is that rig counts no longer matter since production is so much more efficient. In his view, this shows that analysts simply grew impatient when oil prices did not immediately go higher when the recent rig count took a dive.
Instead, experts should also look at another metric when they are forecasting future output. "Analysts looking for a more 'spot on' number should start following the activity of fuel distributors who run nonstop between depots and frack jobs. Watch their sales for a more immediate indication of future production," he wrote.
Doyle also said it is a fallacy that American shale producers are the world's new "swing producers" who can influence oil prices by turning on or curtailing large amounts of their spare capacity. "No, their banks are," he asserted.
Fresh speculation that lifting the Western embargo against Iran with a nuclear deal will cause oil prices to sink is also a misconception, he noted.
"It will take Iran a year or two to add anything meaningful to our . . . global market but the fear of a nuclear Iran will create enough tension to offset the supply addition. Worries over a nuclear Iran, whether real or perceived, will create enough fear in the markets to more than counter balance the additional million barrels a day of supply that may come on."
Doyle said he sees oil prices rising from their current levels of about $50 per barrel.
"A solid $65 to $70 by year-end is the more reasonable number and is just enough to hold off development of some offshore projects, oil sands work and a good amount of the non-core shale plays. A stronger dollar will also do its work here as will a Saudi Arabia hell bent on market share," Doyle concluded.
Data from the U.S. Energy Information Administration show that U.S. crude stockpiles jumped to a new record last week, posting the biggest increase in 14 years as oil production rose,
The Wall Street Journal reported.
The finding was at odds with recent forecasts that booming domestic oil output would start to decline later in 2015, The Journal said.
"There's simply not a shortage at all," said Kyle Cooper, analyst at IAF Advisors in Houston. "There's a big glut, and that glut remains intact.
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