Look out for an L-Shaped recovery in oil

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Look out for an L-Shaped recovery in oil. Bradley Olsen of Bloomberg writes Unlike other petroleum formations, the nature of shale - with multiple inexpensive, short-lived wells - means producers can stop and start drilling on a dime. On the one hand, this allows them to quickly cut costs in a downturn; on the other, every time prices tick up, so will their output -- renewing downward pressure on prices. While an offshore well usually costs about $100 million to drill, and takes as long as 10 years and billions more to begin producing from a new field, a shale well requires only several million dollars and a few weeks to coax out oil and gas. No central authority tells shale drillers, who have been described as the new swing producers, what to do. Unlike the Organization of Petroleum Exporting Countries, the effect they'll have in holding down prices comes from a set of independent decisions influenced by the need to deliver shareholder returns. (VIEW LINK)


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