• 4 minutes Is The Three Gorges Dam on the Brink of Collapse?
  • 8 minutes The Coal Industry May Never Recover From The Pandemic
  • 11 minutes China Raids Bank and Investor Accounts
  • 51 mins Sources confirm Trump to sign two new Executive orders.
  • 1 hour Why Wind is pitiful for most regions on earth
  • 4 hours In a Nutshell...
  • 17 hours During March, April, May the states with the highest infections/deaths were NY, NJ, Ma. . . . . Today (June) the three have the best numbers. How ? Herd immunity ?
  • 2 days Joe Biden to black radio host, " If you don't vote for me you ain't black". That's our Democratic Party nominee ?
  • 3 days Happy 4th of July!
  • 1 hour Why Oil could hit $100
  • 3 days Putin Paid Militants to Kill US Troops
  • 3 days Putin Forever: Russians Given Money As Vote That Could Extend Putin's Rule Draws To A Close
  • 4 days Tesla Model 3 police cars pay for themselves faster than expected, says police chief
  • 4 days Victor Davis Hansen on Biden's mental acuity " . . unfit to serve". With 1 out of 5 Democrats admitting it. How many Dem's believe it but will not admit it?
  • 1 day Coronavirus hype biggest political hoax in history
  • 3 days Apology Accepted!
Battery Metal Sector Sees Light At The End Of The Tunnel

Battery Metal Sector Sees Light At The End Of The Tunnel

The COVID-19 pandemic has significantly…

Saudi Arabia Eyes Total Dominance In Oil And Gas

Saudi Arabia Eyes Total Dominance In Oil And Gas

Saudi Arabia’s Energy Minister Prince…

Libya's Oil Blockade Could Soon Come To An End

Libya's Oil Blockade Could Soon Come To An End

The leaders of groups affiliated…

Nick Cunningham

Nick Cunningham

Nick Cunningham is an independent journalist, covering oil and gas, energy and environmental policy, and international politics. He is based in Portland, Oregon. 

More Info

Premium Content

Will U.S. Shale Ever Return To Its Boom Days?

U.S. shale drillers are bringing back shut in production three months after the onset of the current downturn. But steep decline rates will increasingly take hold, dragging down overall U.S. output later this year.  With oil prices approaching $40 per barrel, many drillers are covering immediate operational costs. Rystad Energy estimates that “a bit more than 300,000 bpd” of shut in U.S. oil production has come back online. 

A total of 1.15 million barrels per day (mb/d) was shut in in April and May, and that output will “return swiftly over July and August,” JBC Energy wrote in a note. 

But that doesn’t mean U.S. oil production will rebound in a V-shaped fashion. “$40 is a blessing in disguise. Nobody’s going to add rigs, nobody’s going to add fleets at $40 oil,” Scott Sheffield of Pioneer Natural Resources told Bloomberg. “I’m trying to convince OPEC members that our industry has changed. It’s all about less growth, it’s all about returning cash back to the shareholders.”

The return of shut in production is different from returning to drilling new wells. “I see no change at $40. We need to get up to $45 to $50 before you see people start adding rigs and add frack fleets,” Sheffield added. “Most companies have too much leverage,” and they are going to “use cash flow to repair balance sheets because the equity markets are closed. So, there’s not going to be a rush back to adding activity at all in my opinion,” he said. 

Because shale wells decline precipitously, overall U.S. production will continue to decline, despite a temporary jolt from the return of shuttered wells. Sheffield puts shale decline rates at an average of between 35 and 40 percent per year without investment. A lot of drillers will try to keep output flat this year, or minimize decline. He estimates that U.S. oil production will be down below 11 mb/d by the end of 2021 because of declines. 

Other analysts have similar outlooks. “[B]y September, the natural declines from shale wells will have accumulated to almost 2 million b/d, keeping US supply suppressed until mid-2021,” JBC said.  Related: Global Oil Demand To Fall To Levels Not Seen Since 2014

Goldman Sachs says the oil market’s outlook in 2021 is “broadly bullish,” due to “a more conservative outlook for Permian rampup.” After analysts with the investment bank met with six large Permian producers, the bank said that one of its key takeaways was that oil executives were serious about prioritizing cash flow and reducing leverage over the return to double-digit production growth. “Producers broadly characterized teens production growth as more an upside case than a base case,” Goldman analysts wrote in a note. The executives, Goldman says, are not expecting oil prices to rise into the $50s in 2021, instead predicting oil to remain in the $40s. 

Oil remaining stuck in the $40s comports with the objectives of OPEC+, which hopes to keep a lid on a shale rebound. “The plan is to stick to prices of $40-$50 per barrel because as soon as they rise any further to say $70 per barrel it encourages too much oil production, including U.S. shale,” a Russian source familiar with OPEC+ talks told Reuters.

The OPEC+ agreement and the short-term extension has rescued oil markets, and it may even lead to a supply/demand deficit in the second half of 2020. “As long as the demand recover stays intact, we believe the crude market will be in deficit also in August and onwards, despite cuts being tapered by 2 million bpd to the scheduled 7.7 million bpd level,” Rystad Energy’s Head of Oil Markets, Bjornar Tonhaugen, said in a statement. Rystad sees a stronger shale response from the deficit, with higher prices “spurring a quicker reactivation of curtailed US oil production, and eventually frac crews ending their holidays early.” 

But the market will not go back to pre-pandemic conditions for years. In addition to the mountain of inventories that need to be worked off, U.S. shale has a wall of debt coming due. On top of that, while demand is on the upswing, it could flatten out well short of pre-pandemic levels. 

Pioneer’s Scott Sheffield said that the quick rebound of demand to around 94-95 mb/d following the “reopening” of so many economies will give way to stagnation for a few years until a coronavirus vaccine can be widely distributed. He predicts that oil demand won’t rebound to pre-pandemic levels of around 100 mb/d until 2022 or 2023. 

By Nick Cunningham, Oilprice.com

More Top Reads From Oilprice.com:


Download The Free Oilprice App Today

Back to homepage





Leave a comment
  • Mamdouh Salameh on June 08 2020 said:
    Oil prices are projected to range from $45-$50 a barrel during the second half of this year and touch $60 in early next year. Such a range will prevent US shale oil production coming back in force and will also retard expensive oil projects taking off.

    And with a breakeven price ranging from $48-%68 a barrel, US shale oil producers need prices above $70 to start raising their production. Putting the hype of the US Energy Information Administration (EIA) aside, US shale oil drillers might manage to muster a production of 7-8 million barrels a day (mbd) with US crude oil imports projected to rise from 9 mbd in 2019 to 11-12 mbd in the next two years.

    My calculations suggest that global oil demand could reach 98.30 mbd in 2020 compared with 101.34 mbd in 2019, just 3 mbd below 2019 despite the horrendous destruction of global oil demand by the coronavirus outbreak.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News