• 15 mins French Strike Disrupts Exxon And Total’s Oil Product Shipments
  • 2 hours Kurdistan’s Oil Exports Still Below Pre-Conflict Levels
  • 4 hours Oil Production Cuts Taking A Toll On Russia’s Economy
  • 6 hours Aramco In Talks With Chinese Petrochemical Producers
  • 7 hours Federal Judge Grants Go-Ahead On Keystone XL Lawsuit
  • 9 hours Maduro Names Chavez’ Cousin As Citgo Boss
  • 15 hours Bidding Action Heats Up In UK’s Continental Shelf
  • 20 hours Keystone Pipeline Restart Still Unknown
  • 1 day UK Offers North Sea Oil Producers Tax Relief To Boost Investment
  • 1 day Iraq Wants To Build Gas Pipeline To Kuwait In Blow To Shell
  • 1 day Trader Trafigura Raises Share Of Oil Purchases From State Firms
  • 1 day German Energy Group Uniper Rejects $9B Finnish Takeover Bid
  • 1 day Total Could Lose Big If It Pulls Out Of South Pars Deal
  • 1 day Dakota Watchdog Warns It Could Revoke Keystone XL Approval
  • 2 days Oil Prices Rise After API Reports Major Crude Draw
  • 2 days Citgo President And 5 VPs Arrested On Embezzlement Charges
  • 2 days Gazprom Speaks Out Against OPEC Production Cut Extension
  • 2 days Statoil Looks To Lighter Oil To Boost Profitability
  • 2 days Oil Billionaire Becomes Wind Energy’s Top Influencer
  • 2 days Transneft Warns Urals Oil Quality Reaching Critical Levels
  • 2 days Whitefish Energy Suspends Work In Puerto Rico
  • 2 days U.S. Authorities Arrest Two On Major Energy Corruption Scheme
  • 3 days Thanksgiving Gas Prices At 3-Year High
  • 3 days Iraq’s Giant Majnoon Oilfield Attracts Attention Of Supermajors
  • 3 days South Iraq Oil Exports Close To Record High To Offset Kirkuk Drop
  • 3 days Iraqi Forces Find Mass Graves In Oil Wells Near Kirkuk
  • 3 days Chevron Joint Venture Signs $1.7B Oil, Gas Deal In Nigeria
  • 3 days Iraq Steps In To Offset Falling Venezuela Oil Production
  • 3 days ConocoPhillips Sets Price Ceiling For New Projects
  • 6 days Shell Oil Trading Head Steps Down After 29 Years
  • 6 days Higher Oil Prices Reduce North American Oil Bankruptcies
  • 6 days Statoil To Boost Exploration Drilling Offshore Norway In 2018
  • 6 days $1.6 Billion Canadian-US Hydropower Project Approved
  • 6 days Venezuela Officially In Default
  • 6 days Iran Prepares To Export LNG To Boost Trade Relations
  • 6 days Keystone Pipeline Leaks 5,000 Barrels Into Farmland
  • 7 days Saudi Oil Minister: Markets Will Not Rebalance By March
  • 7 days Obscure Dutch Firm Wins Venezuelan Oil Block As Debt Tensions Mount
  • 7 days Rosneft Announces Completion Of World’s Longest Well
  • 7 days Ecuador Won’t Ask Exemption From OPEC Oil Production Cuts

Would Regulated Oil Prices, Argentine-Style, Help U.S. Shale?

Pipeline Rigs

U.S. shale oil companies are filing for bankruptcy at an alarming rate, whereas, their counterparts in Argentina are having a gala time. When the U.S. shale oil drillers were struggling to earn $39 per barrel of oil, Argentina was offering $67.5 per barrel to their producers.

Due to the oil price crash, the world’s capital spending in oil and gas has reduced by approximately 20 percent in 2015. By comparison, U.S. oil and gas companies have reduced spending by 40 percent last year, according to Moody’s Investors Service.

On the other hand, Argentina’s state-run oil company YPF increased spending by only 4 percent during the same period.

Is this model of regulated oil prices in Argentina replicable in the U.S.?

Though this seems to be a good solution, this is not sustainable or beneficial in the long-term. Related: Wells Fargo Reduces 66% of Credit Lines to Oil and Gas Players

Prior to 2014, when oil prices were high, the cost of U.S. shale oil production was estimated to be between $70-$90/b, according to different analysts. But when crude prices declined, shale oil producers were forced to innovate and reduce costs, which has decreased the cost of production to $60/b in the third quarter of 2015.

As the oil prices continued to drop further, shale drillers continued to modernize, further reducing the cost of production in 2016.

Along with the technological advances, the productivity of the companies has also increased. They are utilizing their manpower wisely and funds prudently.

The world is recognizing the need for cleaner fuels and a preference to move away from fossil fuels. Hence, there are many experts who believe that oil prices are unlikely to touch $100/b again.

On the other hand, the biggest oil trading company, Vitol, has forecast a likely range of $40-$60/b for the next decade. Had the U.S. protected the shale oil producers, they would not have taken steps to cut costs.

The high prices paid to the oil companies in Argentina is borne by the consumers. Such a practice in the U.S. would have reduced the disposable income available to American households. Related: Why Cheap Shale Gas Will End Soon

“It may not have a huge effect on the top 10 percent of households, but if you’re earning $30,000 or $40,000 a year and drive to work, this is a big deal,” said Guy Berger, United States economist at RBS back in January 2015, when crude prices were close to the current prices of $49/b.

Now that the shale oil drillers have considerably reduced production costs, if crude oil prices rise even to $60-$70/b, they will reap windfall profits. Their longevity has increased, and they are here to stay.

As a result, following Argentina’s approach is not long-term positive for the industry. U.S. shale oil companies have drastically cut costs in order to survive, ensuring that they will be competitive over the long-term.

By Rakesh Upadhyay of Oilprice.com

More Top Reads From Oilprice.com:

Back to homepage

Leave a comment
  • R. J. Spoley on May 26 2016 said:
    As usual, the analysis is lopsided in looking at the problem from only one perspective. Money handling. First, better than 33% of the "oil" from "shale wells" is greater than 50 API. Not good for making gasoline much less diesel. Secondly, "shale wells" only hold the zone they are completed in, thus no work overs or recompletions and no stacked reservoirs. What you see, is what you get, and in this case, it's very short term. By the way, you really don't get to "see" your reservoir as these wells are not logged "horizontally". Also, try pumping a " horizontal" well. Lots of luck. Once the gas energy source declines the show is over. Sorry. Reserves? Your kidding. Porosities of 5-8 % and 90% water saturation and recovering less than 20% of the "in place" reserves. The list goes on. This is all very short term thinking. Large vertically integrated oil companies usually require 10 years to "first oil" and it's getting worse with all the global unrest going on. The American E&P industry, along with OPEC has always been about regulating production because oil & gas are a commodity. Too much causes a price crash and producers go out of business which causes a shortage resulting in a price spike. All governments control commodities on both the up and down sides with production/price sideboards. This has stabilized agriculture worldwide. Now this guy wants to eliminate these controls and create chaos. Get a life! We wouldn't be in the fix we're in now if proration rules had been adhered to!
  • The Donald on May 26 2016 said:
    How much does it cost the American economy to protect Americans against terrorists? They are funded by oil sales to the USA. If we produced more oil at home the prices of OPEC oil would drop even more and they would have less money to do harm around the world. So yes we should protect our domestic producers from extreme swings in price that are caused by external forces such as Saudi Arabia flooding the market. Therefore, the author needs to either get a brain or use the education in a manner that will help the American economy. I thought Hillary was dumb but there are people even dumber.

Leave a comment

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