Chart Check (“The Road To Nowhere”)

Recall how I’m always talking about the futility of US oil production.

Here’s how the dynamic works (or, more appropriately, “doesn’t work”):

1. prices rise
2. capex and production ramps up as plays become economic again
3. market becomes oversupplied
4. prices plunge
5. outspend (i.e. funding gaps) are plugged with debt, revolvers, and equity offerings
6. producers live to pump another day thanks to wide open capital markets (i.e. investors’ hunt for yield)
7. prices rise
8. rinse and repeat

Or, visually:

Well, for those interested in the exact point at which US producers embark on “step 2” from the numbered list shown above, here’s a simple chart from BofAML:

(BofAML)