From Bloomberg

Permian could boost crude output in days: Aramco’s former reservoir management chief

The U.S.’s Permian Basin is looking like Saudi Arabia, with as much as 1 million barrels of spare oil capacity ready to go into production, according to Nansen Saleri, former head of reservoir management at Saudi Aramco, the world’s largest crude exporter.

Oil producers in the Permian Basin have at least a combined 500,000 barrels a day of idle oil production capacity, according to Saleri, who is now chief executive officer of Houston-based consultant Quantum Reservoir Impact. Saudi Arabia’s spare capacity is about 1.5 million barrels a day, according to data compiled by Bloomberg.

The Permian Basin of Texas and New Mexico is the engine for U.S. shale production and acquisitions, helping to increase U.S. output to more than 10 million barrels a day in November for the first time in more than four decades. Exxon Mobil Corp. is spending billions to triple output by 2025 from the Permian, where its costs are as low as $15 a barrel.

“For decades there was one country and one company that had spare capacity and that country was Saudi Arabia and that company was Saudi Aramco,” Saleri said. “Now we are seeing an analog to that in the Permian.”

West Texas Intermediate oil futures traded in New York have climbed 7.4 percent this year. The benchmark grade was 56 cents lower at $64.89 a barrel at 9:44 a.m. on Monday in Dubai.

The Permian region can increase output in response to higher demand in three to four days, faster than anywhere else except fields run by Saudi Aramco, known officially as Saudi Arabian Oil Co., Saleri said. Producers in the Permian will probably pump at least 3 million barrels a day of crude oil in a year, up from about 2.6 million barrels a day currently, said Saleri.

“The operators who aren’t efficient have left the game and only those super-efficient operators are staying,” he said. “If operators believe that oil prices will stay above $60 for the coming six months they will go on a drilling program.”

Oil prices getting more volatile

Oil’s decline accelerated as the deepening slump in equity and debt markets undermined the outlook for energy demand against the backdrop of swelling U.S. crude production.

Futures fell as much as 1.4 percent in New York on Monday. Stock markets tumbled around the world and confidence crumbled in emerging markets and the riskiest forms of debt. Meanwhile, the number of rigs searching for crude in American onshore fields jumped close to a six-month high last week, a harbinger of even-greater oil output.

“This is an everything-getting-sold kind of situation,” John Kilduff, founding partner at Again Capital LLC, said in a phone interview. “The selloff in the equity market is bleeding over to commodities on fears of economic prospects going forward.”

West Texas Intermediate crude, the U.S. benchmark, topped $66 a barrel this year for the first time since 2014, extending a rally driven by the extension of production caps by the Organization of Petroleum Exporting Countries and allied producers. While crude’s strong start to the year was also helped by dwindling American inventories and a weakening dollar, analysts have been cautioning about the potential for a surge in U.S. shale output.

“There is more supply coming to this market, and we are entering the period of the refineries’ maintenance,” Kilduff said. “We are going to see a hit to a demand globally that is lowering global prices today.”

WTI for March delivery dropped 49 cents to $64.96 a barrel at 11:10 a.m. on the New York Mercantile Exchange. Total volume traded was about 68 percent above the 100-day average.

Brent for April settlement lost as much as $1.07 to $67.51 on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a premium of $3.61 to April WTI.

U.S. drillers last week added six rigs to raise the number of machines drilling for crude to 765, the highest since Aug. 11, Baker Hughes data showed Friday. That may lead to a further increase in U.S. crude production, which breached 10 million barrels a day in November to the highest level in more than four decades.

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