While a lot of the US’ nearly miraculous explosion in domestic oil and gas production can be traced to the rise of fracking at shale oil fields, the US’ total daily production is also pushed up by oil ‘strippers.’ Strippers are small-scale oil producers which strip otherwise economically nonviable amounts of oil from former high volume oil fields. These oil scavenger operations are numerous and scattered throughout the US. Producing somewhere north of 730,000 barrels of oil per day, the US oil stripper industry contributes a decent chunk of the US’ overall oil supply.
The vulnerability of oil strippers’ oil contribution might be a gateway to an oil price rebound
Just like shale oil producers, stripper well operators are feeling the heat of sub-$50 per barrel oil prices. However, unlike shale oil wells which can be shuttered and restarted fairly quickly depending on how oil prices are doing, once stripper oil wells are shut in, it would be nearly impossible to restart them again. Thanks to sand, water, and other geologic contamination, stripper wells are hard to rehabilitate once shut.
Consequently, if Saudi Arabia’s strategy of trying to cripple US shale oil with low prices succeeds in shutting the majority of stripper operations throughout the US, the resulting reduction in supply-to the tune of 730,000 barrels a day-might put upward pressure on the global price of oil. US oil production might be more vulnerable than we think. Of course, this all assumes that the loss of stripper oil volume is not offset by increased fracking productivity by shale oil producers or continued soft demand from most developed economies. Still, traders playing the oil market should keep this key market information tidbit in mind when betting on forecasts of global oil’s mid-to-long-term pricing.