US oil market share will be subdued, but it won't kill shale oil

Oil&Gas Materials 22 June 2020 15:36 (UTC +04:00)
US oil market share will be subdued, but it won't kill shale oil

BAKU, Azerbaijan, June 22

By Leman Zeynalova – Trend:

US oil market share will be subdued as former levels were not built on demand in the global market, but willingness/need of US shale to export, as there are no clients enough for the US shale oil, 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.

“We will see a major shakedown in the sector, removing smaller ones, or even bigger shale oil producers that have too high debt levels. This restructuring is needed, but doesn’t mean the end of shale oil. IOCs and NOCs are already acquiring acreage, at low prices so possibly very profitable. Also, when companies go broke, their debt is also being written off. New incumbents, including US banks and SWFs are taking acreage too at present,” he said.

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 that U.S. production is falling without any political decisions as several oil companies are reducing their investment and drilling activities due to very low crude prices.

U.S. oil output could fall by 2-3 million b/d this year, which is very important as this country is the world's largest crude producer before Russia and Saudi Arabia in this order, he said.

“Based in Delaware Whiting Petroleum Corporation was the first independent U.S. oil company to file a Chapter 11 reorganization plan because it was no longer able to meet its financial commitments. The U.S. oil industry is suffering a lot in 2020 and some of its players will not survive. That being said these bankruptcies could allow some big players to buy oil and gas assets at very low prices. Producers of shale oil will rebound after the pandemic as they did after the price fall between the summer of 2014 and the beginning of 2016. Let us recall that U.S. oil production fell in 2016 but increased in 2017, 2018 and 2019. The coronavirus is killing a lot of persons throughout the world and in the U.S. but it will not kill the U.S. oil industry, including its shale oil segment. But several individual producers will disappear from the market,” noted Perrin.

This is while the US JP Morgan Bank reported that the US horizontal oil rigs and frack crews—key drivers of shale oil production—appear to have stabilized.

“ Recovery in US oil production is underway with increased frac activity signaling a wave of new production in early 4Q20 (in line with our current expectations). According to daily production data reported by Genscape, US crude and condensate production shut-ins continue to diminish in key plays (Permian, Powder River Basin, Eagle Ford, and Niobrara). Gulf of Mexico production shut-ins as a result of Tropical Storm Cristobal have seemingly fully recovered according to the Bureau of Safety and Environmental Enforcement (BSEE). Amid the return of shut-in production, we believe that the declining rig count is likely reaching its nadir while frac activity is likely already staging a recovery,” said the Bank.

According to highfrequency satellite data, Rystad Energy reports identifying 130 frac operations that started in June with a significant number of completion rounds beginning last week. While the amount of activity may be distorted when moving from a base of no activity, Rystad believes that if last week’s activity levels were to persist through the remainder of June, it is possible to see an increase in the number of started frac operations as early as this month.

“With our 3Q20 price forecast for WTI averaging $34/bbl, we expect for frac operations to continue to increase through the summer months, with anecdotal data suggesting several producers already planning to increase activity in July and August. This would fall in line with our assumption of production increases from deferred frac activity beginning in October,” said JP Morgan Bank.


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