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WPX drilling operation in the Bakken formation. (Image courtesy of WPX Energy)

Bakken vs. Iran: How sweet crude will minimize the deal’s impact

While the recent Iran deal has some concerned that the already flooded oil market will soon be spilling over tank tops and causing prices to trickle down with it, Forbes contributor Joel Moser has some encouraging insight into why the deal, thanks in part to the Bakken, won’t harm long-term investments.

While the obvious outcome of the deal is a drop in global oil prices due to increased supply, Moser argues that this effect is unlikely to last. He writes, “While Iran deal chatter will certainly feed volatility and likely a short term slide, ultimately, after all the guests go home, the candles burn out and the forwards expire, the fundamentals of basic global supply and demand will rebalance the market and prices will settle at around $60 to $70 a barrel.”

But, why is this the case when Iran has the fourth-largest proved reserves of crude oil and the largest proved reserves of natural gas in the world? Well, because the Organization of Petroleum Exporting Countries, whether or not Iran production is included, is no longer setting the global price of oil. OPEC’s global market share recently hit a 12-year low, and only a few months ago, Saudi Oil Minister Ali Al-Naimi said, “The production of OPEC is 30 percent of the market, 70 percent from non-OPEC … everybody is supposed to participate if we want to improve prices.”

It seems, as argued by Moser, that Bakken crude is pulling its weight when it comes to affecting the global market. In regards to oil prices, he said, “The fully loaded extraction cost in North Dakota, where fracked crude provides a meaningful enough share of global supply that prices will always return to a point which will keep that flow switched on – enough above cost to make it worthwhile, until there are more basic shifts in the energy climate.”

The announcement of the Iran deal has already increased the workload for short-term traders as expectations of increased supply caused a slight drop in prices, despite record refining throughput and decreased U.S. supplies. Much of Iran’s oil, though, has already been on the market, albeit indirectly. While the world waits for the Iran deal to be finalized, the global market oversupply continues to be the bane of investor’s and producer’s existence. Last week the International Energy Agency reported on the global market’s massive oversupply, warning that “the bottom of the market may still be ahead.”

In the IEA’s monthly report, the agency said, “It is equally clear that the market’s ability to absorb that oversupply is unlikely to last. Onshore storage space is limited. Something has to give.” This too, though, will only be temporary. Lower prices have caused producers to scale back operations significantly, as witnessed in the Bakken earlier this year with drilling rigs dropping like flies. But, this is by no means indicative of a bust as producers have maintained production levels of 1.2 million barrels per day, despite operating the lowest number of rigs since November 2006.

Along with the slowing operations comes an increase in demand, as seen in the increasing amounts of gasoline consumption as U.S. drivers hit the roads for the summer. The slowdown, combined with the speeding drivers, add up to a rebalanced market where activity is sustainable despite low prices. Although the short-term outlook is on a downward slide, the long-term continues to show promise.

51 comments

  1. Thomas Vinson, check this out.

  2. No, it won’t.

    Check the interest rates for financing Bakken drilling.

    Match against depletion rates and paying off the debt.

    Follow Chesapeake and quite a few others.

    Track the winners, catalog the losers.

    Debt. Lots of it.

    No way. Particularly when you add the Chinese implosion into the mix.

  3. Not to nit pick things but that picture sure looks like Garden Gulch road in Colorado, where WPX drills. Not in the Bakken. I could be totally wrong but that looks like MM 1-2.

  4. Didn’t know Chesapeake was operating in The Bakken…. But yeah were screwed

  5. How can anything offset a nuclear war?

  6. Chesapeake is not.
    But check their debt.

  7. Chesapeake was but didn’t know how to drill..all they kept getting was water..

  8. Bakken crude as I understand it is not very sweet, loaded with sulphur and minerals and difficult and expensive to process. Cut the crap

  9. So many experts. Derrrrrrrrr. Morons. Kys

  10. It has to be shipped out to be refined. Don’t know what you get your information – rofl

  11. Where did you get your information Richard Trimble – just curious

  12. Richard Trimble, you don’t know what your talking about. Bakken Crude is as pure as it gets! Straight from the well you could run the farm tractor on it. It’s practically market ready from the ground! Smh..

  13. Way south. They had some wells south of Beach and Dickinson. Before the coil frac got real popular down there

  14. Doesn’t matter if we can’t export does it? Think we need to repeal the export ban and lift the moratorium offshore.

  15. Chesapeake is thrown up as an example, not the measure.

    How many counties in North Dakota are operating in the black?

    Four maybe?

    No one I’m seeing talking about this, bothers to mention square footage in a formation with a multi-hole pad versus traditional square footage through the formation when they talk about depletion rates in servicing the debt required in financing long term with an exponential ability to drain a formation short term.

    For some Wall Street Quant that knows finance, hell be looking at one thing. Will the investment pay the points.

    As it sits right now, Saudi could actually use cash as a drilling fluid and still beat the Bakken.

    If you’re not already filthy stinking rich drilling it, chances are you’re not going to be.

    Without the high end financing, it’s a dead horse.

    Only a fool would buy out an top tier developer, take on the debt load and think sucking everything dry in a year would cover a long term note.

    Ain’t going to happen unless some big cheap fields cross the water demarcation mark that drives up their costs to produce it.

    Water content in certain international crude still has a measure that drives the price.

    You’ll notice certain countries still keep that a well guarded secret.

    There’s your out.

    And of course water is one of the biggest problems with all of it, particularly in close proximity to one of the largest aquifers in the country and the geological coincidence that puts both in close proximity to one another.

    And you’ll also notice water is becoming quite a hot button issue.

    There seems to be little blue sky with the Bakken.

    I wish there was, but as it sits, there ain’t.

  16. Yeah sure, we can go to $20/bbl oil prices. Who will that hurt more, small independent producers or NOCs? Keep flooding the market and we will find out.

  17. The oil is at $49.20 A Barrel we Need to CUT PRODUCTION By 25% for At least 3 to 4 months and the price will go back to the mid Seventies.

  18. Iran deal .. bad for America..

  19. Better oil in Illinois and Indiana just not as productive

  20. It won’t have to even anything out of congress will do the right thing and reject the deal.

  21. Probably just as much oil around Fort Peck area!

  22. Something needs to happen. I need to go back to work….

  23. I’m in the bakken right now right in the middle of Williston doing a drill out with oasis and just got off a 6 months job with xto last week we still going strong.

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