Already saddled with extensive debt, trading at distressed levels and effectively shut out of credit lines by banks, the industry is going to suffer historic shutdowns. Areas such as the Permian Basin, the low-cost oilfield in western Texas that is the epicenter of America’s oil boom, are going to suffer a major bust. In essence, the American shale oil boom of the last few years is over. And just between March and May, US crude oil production will fall from 12.7 million barrels per day to 11.9 million barrels per day, a staggering loss of 800,000 barrels per day. ![]() About 100 oil and gas companies could be filing for bankruptcy over the next year, a figure that could balloon if prices for Western Texas Intermediate stay below $40 per barrel. The effects are already being seen in the American shale oil industry. Just covering production costs in such a depressed global economic environment will leave American shale producers lacking cash for shareholder dividends and basic corporate costs. In contrast, Saudi oil is the cheapest to produce in the world at an average of $8.98 per barrel and Russian production costs average $19.21 per barrel. ![]() That’s the lowest level ever reached by oil prices for WTI since the New York Mercantile Exchange started trading oil futures in 1983.įor most American shale oil producers to stay in business, average oil prices for WTI need to be hovering between $40 to $45 per barrel at the very minimum due to the relatively expensive extraction cost. On April 20th, prices for West Texas Intermediate (WTI), the American crude benchmark, ended a calamitous day at $-37.6 per barrel. The industry has been hit by a perfect storm of historically depressed energy demand due to coronavirus containment efforts, the unwillingness of main oil producing countries to agree to the production cuts necessary to lift prices and Saudi Arabia and Russia’s willingness to take extraordinary measures and flood the market with oil to keep prices suppressed.Īfter the OPEC meeting in early March, where the Russians didn’t agree with the Saudi plan to decrease production, the Saudis initiated a price war with Russia and its allies. The day of reckoning has come for American shale oil producers.
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