Shale Drillers Digging Themselves a Hole as Oil Breaches $45

15 Jun 2017   Shale Oil

U.S. shale is coming perilously close to puncturing its own rally.  Just months after predicting double-digit production increases, largely based on crude prices sitting between $55 and $60 a barrel, drillers are suddenly contemplating the possibility of retrenchment as a stubborn global supply glut pushes prices below $45.  It’s a reversal that could accomplish what OPEC and other global producers have failed to do this year: slow down America’s booming shale industry. Analysts and company officials say a drop to $40 a barrel could halt rig growth for smaller drillers in less active U.S. shale basins, and undercut efforts by fracking service providers such as Halliburton Co., FTS International and Patterson-UTI Energy Inc. to raise their fees.  “The growth outlooks proposed by many oily E&Ps appear tenuous at best and not resilient to prolonged weak oil prices,” Mizuho Securities USA analysts Timothy Rezvan and James Lizzul wrote in a June 11 note. They cited rising service costs and the industry’s lack of hedging protection for next year.  West Intermediate Texas crude, the U.S. benchmark, tumbled as far as $44.54 a barrel in New York trading Wednesday, its lowest level in five weeks after the U.S. government reported gasoline and other petroleum product stockpiles swelled last month. WTI has fallen 19 percent this year from its peak of $55.24 on Jan. 3.

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