Don’t Underestimate The Resilience Of U.S. Shale

One of the biggest oil traders in the world, Mercuria Energy Group, sees U.S. shale as very resilient and refusing to shut production despite low crude prices.

"In the United States, we are buying at levels close to zero but because of various pipeline, bank commitments they continue to sell. They keep on going because they hope when demand is back, they can come back to life. So shale is very resilient," Mercuria's chief executive officer Marco Dunand told Reuters in an interview published on Friday.

Last month's historic oil price collapse forced many U.S. drillers, including the supermajors Exxon and Chevron, to announce significant reductions in projected spending and drilling operations, as no one in the U.S. shale patch can profitably drill a new well at $20 WTI Crude.

Since the oil price crash in early March, 22 U.S. independents have cut expenditure for 2020 by a total of US$20 billion, an average of 35 percent, and three have slashed capex by 50 percent or more, Simon Flowers, Chairman and Chief Analyst at Wood Mackenzie, said on Tuesday. Related: What Really Caused Oil To Rally By 25%?

This week, U.S. shale producer Whiting Petroleum Corporation, once one of the top producers in the Bakken, said it had filed for bankruptcy protection, becoming the first major victim of the oil price war and the coronavirus pandemic that sent oil prices to $20.

While oil futures hit an 18-year-low on Monday, the prices of physical barrels from Europe to North America slumped to record discounts to benchmarks and trade in the teens and single digits, with traders scrambling to place physical crude barrels amid an unprecedented demand loss and growing global glut.

Refinery runs around the world are down by 15 million bpd, according to the conservative estimate of Mercuria's Dunand. Demand is already down by 20 million bpd or even more, the executive told Reuters.

By Tsvetana Paraskova for Oilprice.com

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