Shale Decline Inevitable as Oil Prices Crash
MOSCOW (RT) - The U.S. shale industry continues to show signs of slowing down, with production declining in major shale basins outside of the Permian.
Financing stress has plagued the shale sector for quite some time, but investors continue to bail on oil and gas stocks. The FT points out that the energy sector is now underperforming the S&P 500 "by the biggest margin since the Japanese attack on Pearl Harbor in December 1941.” In other words, it has been nearly 80 years since U.S. oil and gas stocks have performed so badly relative to the rest of the market.
The pressure is starting to have an impact on drilling and production.
The latest EIA Drilling Productivity Report shows that production in all major shale basins outside of the Permian have started to decline, and even the Permian’s expected growth for March is a fraction of the growth rates seen during the heady days of 2018.
Even still, the effects of the coronavirus have likely not yet filtered through to the production data. Shifts in drilling activity and rig counts often take several months after a major change in prices, so there could be another dip in the months ahead. With WTI drifting back down to $50 per barrel, many shale companies are in unprofitable territory.
Drillers are "highly susceptible to price signals,” as JBC Energy put it in report in mid-February. The firm cut its shale supply growth forecast to 760,000 bpd in 2020, down 120,000 bpd previously. "The currently suppressed price environment, which is not expected to disappear anytime soon, makes it more difficult for completion rates to achieve their previously expected recovery,” the firm said.
OPEC+’s perennial problem of trying to balance the oil market continues, but after years of battling U.S. shale, the problem is no longer about the Permian or the Bakken. "Over the past five years, U.S. oil output growth has been the main disruptor of OPEC’s market balancing,” Standard Chartered wrote in a note. "That is not the case in 2020; demand is the main driver of imbalances, while U.S. output growth is slowing.”
Standard Chartered put U.S. shale growth at 0.6 million barrels per day (mb/d) this year, and 0.55 mb/d in 2021, "both less than half 2019’s growth of 1.237 mb/d.”
Financing stress has plagued the shale sector for quite some time, but investors continue to bail on oil and gas stocks. The FT points out that the energy sector is now underperforming the S&P 500 "by the biggest margin since the Japanese attack on Pearl Harbor in December 1941.” In other words, it has been nearly 80 years since U.S. oil and gas stocks have performed so badly relative to the rest of the market.
The pressure is starting to have an impact on drilling and production.
The latest EIA Drilling Productivity Report shows that production in all major shale basins outside of the Permian have started to decline, and even the Permian’s expected growth for March is a fraction of the growth rates seen during the heady days of 2018.
Even still, the effects of the coronavirus have likely not yet filtered through to the production data. Shifts in drilling activity and rig counts often take several months after a major change in prices, so there could be another dip in the months ahead. With WTI drifting back down to $50 per barrel, many shale companies are in unprofitable territory.
Drillers are "highly susceptible to price signals,” as JBC Energy put it in report in mid-February. The firm cut its shale supply growth forecast to 760,000 bpd in 2020, down 120,000 bpd previously. "The currently suppressed price environment, which is not expected to disappear anytime soon, makes it more difficult for completion rates to achieve their previously expected recovery,” the firm said.
OPEC+’s perennial problem of trying to balance the oil market continues, but after years of battling U.S. shale, the problem is no longer about the Permian or the Bakken. "Over the past five years, U.S. oil output growth has been the main disruptor of OPEC’s market balancing,” Standard Chartered wrote in a note. "That is not the case in 2020; demand is the main driver of imbalances, while U.S. output growth is slowing.”
Standard Chartered put U.S. shale growth at 0.6 million barrels per day (mb/d) this year, and 0.55 mb/d in 2021, "both less than half 2019’s growth of 1.237 mb/d.”