It could take a year before U.S. shale production starts to rise again, the chief executive of Precision Drilling Kevin Neveu told Bloomberg.
This could happen even if a hypothetical second wave of Covid-19 infections has a milder effect on the U.S. economy than the first one, and even if the economy rebounds, Neveu noted. However, it is U.S. shale that will lead the recovery in the wider oil industry, he also said.
“They’re [shale oil producers] taking it on the chin right now, and certainly production is slowing down and activity is slowing down, but it’s so quick and so easy to get that production flowing again that I think it will be one of the first places the E&P companies go,” Neveu told Bloomberg.
This is what has happened before when supply has tightened and prices have risen, during the last oil price crisis in 2014-2016. Chances are that it will happen again. When it will happen remains the open question.
“Getting back to 800 rigs in the U.S. is plausible,” according to Neveu. “If oil prices were in the US$60 to US$70 range, it could back to where it was pre COVID-19 and pre-Russia-Saudi price war.”
For oil prices to get back to pre-crisis levels we would need to see significantly improved demand and lower supply. For now, there is a better chance for the latter than the former, and this is without factoring in a second wave of Covid-19 infections. This is simply because a lot is being done to shrink supply, yet there is little that can be done to stimulate demand.
The number of active rigs in the U.S. last week was 318, Baker Hughes reported last Friday. That’s down by 21 rigs from the previous weeks and 665 rigs lower than this time last year.
By Irina Slav for Oilprice.com
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