Prices below $60/b are hurting US shale producers and potentially strengthening OPEC’s hand to introduce tighter quotas and output cuts when the group and its allies meet next week, according to delegates. Shale pain may temper US opposition to OPEC cuts OPEC says stable market benefits entire industry
“They [US shale] should be concerned,” one OPEC source told S&P Global Platts Thursday. “I am sure they will be hurting soon, if not already in areas like the Bakken, where their crude sells at steep discounts to WTI. “Brent futures have slid below $60/b in recent days, and NYMEX crude futures fell under $50/b early Thursday before rebounding. Although the price plunge is causing pain for OPEC members, North American producers are fretting a continued deterioration of the market.
The OPEC/non-OPEC coalition may be banking on misery in the US shale patch to tamp down the rhetoric from US President Donald Trump, who has tweeted and commented several times to warn Saudi Arabia and OPEC to keep oil prices low to benefit the world’s largest oil consuming nation. If prices continue to drop, OPEC and its partners may also reason that any rise from production cuts may not be felt as acutely.
Several US shale companies, even as they keep ramping up output, are already below their breakeven prices for production, with looming pipeline takeaway constraints in both the key Permian and Bakken regions. Many have hedged their exposure for this year in the $55-$60/b range, but weakening prices in 2019 remain a significant threat.Meanwhile, crude inventories in the US kept rising, with the US Energy Information Administration on Wednesday reporting a 10th consecutive weekly build.