Some barrels get no respect

Remember Rodney Dangerfield, the late saucer-eyed American comedian and actor who suffered from a chronic respect deficit? As it turns out, the global crude market has its own Dangerfield doppelganger that don’t get no respect: the “Rodney Dangerfield barrel.”

Out of a daily global supply of about 90mn bl, about 44mn bl would not be sanctioned for production at current price levels and are likely to see a massive decline rate, said Zach Schreiber, chairman of PointState Capital, a hedge fund. 

“These barrels come from projects that you would never sanction today,” Schreiber said, speaking at Center on Global Energy Policy’s 2015 Columbia Global Energy Summit this week. “It’s like looking at a marriage and saying, “I would never marry that person.”’

Schreiber didn’t say where these Dangerfield barrels lay, but he’s sure where they are not: from Opec (about 30mn b/d) or North American (about 9.5mn b/d) or Russia (about 10mn b/d).

About 3.2mn b/d of global production capacity could be lost absent sufficient investment, which is unlikely at current price levels, he said. The rapid decline rate of Dangerfield barrels puts more focus on North American unconventional crude output. US production could fall 1mn b/d below its “call” (or implied demand) by the end of 2015 and by 2mn b/d by the end of 2016, he said. This comes amid a steep decline in active US rigs and a flattening of production from key US shale fields.

The global market will need a smooth handoff from the Rodney Dangerfield producers to North American shale producers in order to keep prices stable, Schreiber said.

“Likely the most flexible barrel will be in North America,” he said. “There will be parts of the shale curve that we thought were marginal that will be temporarily needed as a bridge.”

Some US producers like Pioneer Natural Resources are already prepping to boost their rigs, but a smooth transition to an eventual US output recovery is anything but certain.

“I don’t remember very many smooth handoffs,” said Citi Group global head, commodities Edward Morse, who moderated the panel discussion.

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