Oil, Libya and Polish shale

Poland’s hoping to get into the oil production game, thanks to high levels of suspected shale oil reserves scattered across the country. This kind of oil is pretty difficult to collect, however, so it’s an opportunity that only becomes viable when oil prices go up. So international news suddenly matters even more. For example, global supply problems caused by the Libyan civil war are therefore great news to the local black gold miners.

But don’t expect to sign a new office lease with one of the many companies now flowing into the country to take advantage just yet: this weeks’ announcement by the IEA saying 60 million barrels will be released to ease supply constraints is bad news for them, at least in the short-term…

 By knocking price down, the IEA is threatening the vast quantity of marginal supply that has come on stream the past two years. Much of this oil is broken free from shale, drilled at great depths in oceans, or converted from oily dirt (tar sands). To the extent that price is knocked down by such actions, this will affect the future development plans of those Oil and Gas producers who’ve been engaged in bringing the world its new, high-priced supply. I target the $80.00 level as the price point not where supply is taken offline, but where future marginal supply of any substantial note is at risk. Again, the oil market is going to do this math and it will not take long to run the calculations.

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