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Soaring Costs Set To Hurt U.S. Shale Production

1. Soaring Production Costs Stoke Fears of US Shale Slowdown

- Just as US shale producers were poised to capitalize on high crude prices and bring new production to the markets, Texas drillers have been confronted with soaring production costs.

- According to Continental and Coterra, drilling and production costs in average shale plays were up by some 20%. It isn't only that rigs and workers are in short supply, the doubling of fracking sand and diesel prices have also added to the inflationary pressure.

- The lead time between order and delivery of steel pipes (used to line the interior of oil wells), drilling equipment, and compressors can now be as long as two years, coming on the back of global supply chain disruptions.

- Market watchers have been caught by surprise by the EIA’s February crude production data, indicating a decline despite expectations to the contrary, with drillers continuing to deplete drilled-but-uncompleted wells (DUCs).

2. China Spends a Record-Breaking Amount on Russian Commodities

- China’s monthly imports of commodities from Russia reached a new all-time high in April, rising to $8.9 billion, up 56% year-on-year as soaring crude prices and robust buying created a perfect storm.

- Whilst one-sixth of China’s crude buying comes from Russia, oil prices averaging some $110 per barrel last month led to the record numbers, with little additional interest for Russian distressed oil…

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