How will lower oil prices affect US shale oil industry?

How will lower oil prices affect US shale oil industry?

BAKU, Azerbaijan, March 19

By Leman Zeynalova – Trend:

With oil prices below $30 per barrel every producing country will suffer a lot, including the US, Francis Perrin, Senior Fellow at the Policy Center for the New South (PCNS, Rabat) and at the French Institute for International and Strategic Affairs (IRIS, Paris), told Trend.

“This country is the largest oil producer but a great part of its output is unconventional oil with much higher production costs than conventional oil in the Middle East. Within the US oil industry there are a lot of medium and small companies which will not be able to withstand such a crisis. Except if some strong measures are adopted rapidly by the Trump Administration many oil companies in this country will become bankrupt, which could lead to a restructuring of the US oil industry,” he said.

Perrin recalled that the last time oil prices fell very strongly (between the summer of 2014 and January 2016) there was a strong impact on the US oil industry.

“This country's oil production fell in 2016 due to very low oil prices for the first time since 2008. According to the latest projections by the US Energy Information Administration (EIA) US crude and liquids production will probably fall in 2021,” said the expert.

Perrin noted that US oil companies and many other oil companies will strongly reduce their capital expenditures in 2020 if oil prices remain at the present level. “This fall in capex could lead to less oil supply and higher oil prices in the mid-term future.”

Cyril Widdershoven, a Middle East geopolitical specialist and energy analyst, a partner at Dutch risk consultancy VEROCY and Global Head Strategy Risk at Berry Commodities told Trend that US shale oil industry will survive.

“Will not be stating “US shale oil is dead”, it will survive, but has been hurt very hard. Financials are totally red, while only survival at present is Washington’s support. Lower prices at present could remove around 2 million bpd of US oil production, if not more, looking at Gulf of Mexico offshore (which is expensive too),” he noted.

Crude-oil production from seven major US shale plays is forecast to climb by 18,000 barrels a day in March to 9.175 million barrels a day, according to a report from the Energy Information Administration. Oil output from the Permian Basin, which covers parts of western Texas and southeastern New Mexico, is expected to see an increase of 39,000 barrels a day in March from February. Shale oil output from the Anadarko, Appalachia, Bakken and Niobrara regions, however, are expected to see monthly declines.

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