Oil prices are trying to recover on a weak dollar after selling off yesterday on the August oil future contract expiration. Also on a prediction by the Energy Information Administration (EIA) that US oil production would rise by 113,000 barrels a day to 5.585 million barrels a day in August from July, even as they overestimated Junes production by a wide margin. There is also a report that tiny OPEC producer Ecuador is going to raise oil output as it desperately needs some money. This comes as the market should be preparing for another big drop in US crude supply and we’ll keep an eye on the Atlantic where Tropical Storm Don has formed that will impact crude shipments going into and out of the Gulf of Mexico.

Let’s talk shale output first. The EIA says that it will increase by 64,000 barrels in August but they are probably overestimating that number again as it is not considering the rising amount of non-completed wells. Also, we are seeing the increase in oil rigs already start to slow as many independent operators have started putting on the breaks as capital dries up. Previous wells that were drilled in the beginning of the shale resurgence are already facing steep production decline rates so more rigs and more rig completions are going to be needed to keep shale production on this upward trajectory. 

The challenges in the sector also caused a major failure of a private equity fund. The Wall Street Journal Reported yesterday that, “EnerVest Ltd., a Houston private-equity firm that focuses on energy investments, manages the fund. The firm raised and started investing money in 2013, when oil was trading at more than double the current price of about $45 a barrel. But the fund added $1.3 billion of borrowed money to boost its buying power. That later caused it trouble when oil prices tumbled. Now the fund’s lenders, led by Wells Fargo are negotiating to take control of the fund’s assets to satisfy its debt, according to people familiar with the matter. The outcome will leave investors in the 2013 fund with, at most, pennies for every dollar they invested, the people said. At least one investor, the Orange County Employees Retirement System, already has marked its investment down to zero, according to a pension document.”