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U.S. Shale Is Far From Dead

In the last few weeks, we’ve seen a steady stream of stories announcing the death of the US shale industry. The narrative goes something like this; persistently low oil prices are squeezing producers to shut rigs and cut jobs. Closed rigs will lead to a steep drop in US production which will be highly bullish for oil prices in 2020. 

To be sure, there are plenty of facts to be cited revealing stress in the US shale patch. Active US oil rigs are down from 800 in May to 696 at the end of October and some of Texas' biggest independent producers have shed thousands of jobs this fall. There is already pain for shareholders of US producers with the XLE fund- a popular ETF of US crude producers- down 6% over the last six months opposite a 7% gain for the broader market. Most importantly, a steep drop in US crude production was observed this summer when output fell from 12.1m bpd in June to 11.8m bpd in July. There is no question the financial stress being felt by US crude producers is real and owners of their shares should be on alert for further stress. 

However, we seem to diverge with the herd in thinking that financial pain for equity and debt holders of US shale companies foreshadows bullish oil prices in 2020. Most importantly, we must remember here that financial losses for business investors won't necessarily mean fewer US barrels produced next year. 

Before we even discuss any numbers, let’s remember that a fair number of prominent…




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