• 3 days Retail On Pace For Most Bankruptcies And Store Closures Ever In One Year: BDO
  • 10 minutes America Could Go Fully Electric Right Now
  • 5 days Majors Oil COs diversify into Renewables ? What synergies forget have with Solar Panels and Wind Tirbines ? None !
  • 6 hours Rethinking election outcomes for oil.
  • 12 hours Clean Energy Is Canceling Gas Plants
  • 4 hours The Leslie Stahl/60 Minutes Interview with President Trump
  • 1 hour China leaders meet to discuss proposed 5 year economic plan.
  • 4 hours The City of Sturgis Update on the Motorcycle Rally held there, and the MSM's reporting hence
  • 2 hours Australia’s Commodities Heartland Set for Major Hydrogen Plant
  • 6 hours Saudi Oil Minister Abdulaziz said getting rid of oil "Far Fetched and Unrealistic". . True. . . but
  • 6 hours America's Frontline Doctors - Safely Start Living Again!
  • 1 day Video Evidence that the CCP controls Joe Biden
  • 4 hours Irina Slav has a good article - Regarding Investors & Oil
  • 2 days OP article : "Trump blasts Biden Fracking Plan . . . "
  • 2 days GAME CHANGER: MIT Startup Commonwealth Fusion says Commercial Product by early 2030s ! THIS CHANGES EVERYTHING..
  • 7 hours Conoco Pledges ‘Net-Zero’ Emissions in Break With U.S. Rivals
  • 2 days Biden denies fracking ban
  • 3 days Is the coal industry on the way out?
Oil Rallies As Trump Returns To The White House

Oil Rallies As Trump Returns To The White House

After soaring on Monday, oil…

China's Crude Imports Become Backbone Of Oil Price Recovery

China's Crude Imports Become Backbone Of Oil Price Recovery

The world’s largest oil importer,…

Could Big Oil’s Shift To Renewables Be Good For Prices?

Could Big Oil’s Shift To Renewables Be Good For Prices?

Big oil’s shift toward renewable…

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

U.S. Shale Collapse Will Lead To Higher Oil Prices

U.S. shale growth is about to decline, becoming an immediate victim of the Saudi-Russian price war.

Saudi Aramco said that it would increase oil production to 12.3 million barrels per day (mb/d) in April, a shocking escalation of the war for market share. That level of output is believed to be beyond what Aramco can produce on a sustainable basis. In other words, Saudi Arabia is going all-out to flood the market.

Also, Saudi energy minister Prince Abdulaziz bin Salman didn’t sound interested in meeting with Russia anytime soon. “I fail to see the wisdom for holding meetings in May-June that would only demonstrate our failure in attending to what we should have done in a crisis like this and taking the necessary measures,” Prince Abdulaziz told Reuters.

According to Energy Intelligence, Saudi Arabia is conducting budgeting exercises to game out scenarios in which oil crashes to between $12 to $20 per barrel, and will even look at an extreme scenario in which oil falls below $10.

Russia says it can withstand the price war at $25 to $30 per barrel for 6 to 10 years. Neither side appears willing to budge.

“Monday will go down as one of the bleakest market days in the history of the energy sector,” Raymond James wrote in a note. “Was this capitulation day? It certainly feels like it... it is hard to imagine how much worse sentiment can get.” Related: Russia Fires Back: Could Boost Oil Production By 500,000 Bpd

As a result, the immediate victim will be U.S. shale. “[O]il should bottom out when producers begin physically shutting in wells, which is indeed what set the floor four years ago,” the investment bank added.

The reaction was swift. With share prices in freefall, the number of shale companies announcing budget cuts multiplied at the start of the week. Diamondback Energy and Parsley Energy immediately announced plans to cut spending and reduce drilling activity.

Canadian oil company Cenovus Energy slashed 2020 capex by 32 percent and its production guidance by 5 percent. Ovintiv said it would cut spending and tried to reassure skittish investors that it had enough liquidity. Marathon Oil cut spending by $500 million.

Even Chevron admitted that it might need to cut spending, just days after it unveiled lofty goals on free cash flow over the next five years. “We are reviewing alternatives to reduce capital expenditures, that are expected to lower short-term production and preserve long-term value,” Chevron said in a statement to Reuters late on Monday. Chevron was the first oil major to suggest that it might cut spending, and the oil giant said that it needs $55 per barrel in order to cover its spending and shareholder payouts.

At these prices almost no shale well drilled today can make money. Rystad Energy says just a handful of companies have breakevens lower than today’s oil price. Friezo Loughrey of data firm Oil Well Partners LLC told Bloomberg that Permian breakevens are closer to $68 per barrel if investors want an adequate return within 24 months. Today, prices are trading at half of that. Related: Saudi Arabia's Archenemy Is Taking Advantage Of The Oil War

“Many US fracking companies already had their backs to the wall before the price slump due to high debts and financing difficulties,” Commerzbank wrote in a note. “Drilling activity declined continuously until mid-January, and has since stagnated at a low level.”

The one-two combo of the coronavirus pandemic and the Saudi-Russia price war could deliver a knockout blow to U.S. shale.

But perspectives on the impact on production vary. JBC Energy said that they “prefer a more cautious call on US supply declines,” adding that it may take a few months before production begins to fall.

But others see an immediate retreat. “A decline in US shale oil production of 1-2m bl/day from current total US oil production of 13.1m bl/day is natural to expect,” Bjarne Schieldrop, chief commodities analyst at SEB, said in a statement. “We now think that a last-minute deal between Russia and OPEC before the expiry of the current cuts at the end of March 2020 is very unlikely. Russia has probably firmly decided that now is the time to pull away the rug from under the feet of the shale oil producers, so now is the time for the second shale oil reset.”

By Nick Cunningham of Oilprice.com

More Top Reads From Oilprice.com:


Download The Free Oilprice App Today

Back to homepage





Leave a comment
  • Seth D on March 10 2020 said:
    The chance of Shale collapsing is somewhere between slim and none and the idea that oil prices will rise due to this imaginary theory is about as likely as the fax machine replacing the Internet.

    One can write the same wrong thing 150 times and be wrong 150 times, but there's always 151.
  • Nessy Oil on March 10 2020 said:
    Doubt it. 2016 lots of shale went bankrupt. Bond holds took 50 to 60pt shave. Took over the company and new debt free co could keep pumping at these low prices. Same thing will happen this time around too. It’s the American way
  • Frank Weiss on March 10 2020 said:
    The whole world supply curve has shifted down, for whatever reason. Oil prices are lower. Just because American shale is not viable at the new price means nothing.
  • Mamdouh Salameh on March 11 2020 said:
    The biggest loser in the current situation is the global economy and within the global economy the two biggest losers are the US shale oil industry and Saudi Arabia.

    With a breakeven price of $70 a barrel and a well depletion rate of 70%-90% after first year production, low oil prices would for sure hasten the demise of the US shale oil industry. Any loss of production could lead to a reduction in the glut in the market and therefore a rise in oil prices once the coronavirus outbreak is over.

    Saudi Arabia can’t raise its oil production to 12.3 million barrels a day (mbd) under any circumstances. Its claim of having a production capacity of 12.5 mbd is a myth. Moreover, Saudi oil production is in decline having peaked at 9.65 mbd in 2005. Saudi Arabia can produce some 8.0-9.0 mbd with another 700,000 barrels a day (b/d) to 1.0 mbd coming from stored oil on tankers or underground.

    Moreover, Saudi Arabia can never win a price war with Russia. Russia’s economy can live with an oil price of $30-$40 a barrel for years compared with a price far higher than $85 for Saudi Arabia. Russia is one of the world’s most advanced countries with a diversified economy compared with the Saudis’ which is overwhelmingly dependent on the oil revenues.

    Saudi Arabia would pay a very heavy price in a price war with Russia adversely impacting its budget deficit and Saudi Aramco’s share prices.

    That is why Saudi energy minister Prince Abdulaziz bin Salman will have to resume cooperation with Russia as both Saudi Arabia and Russia working together have huge influence on the global oil market and prices.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Danny Herrera on March 11 2020 said:
    Nick could it be possible that the Russians initiated this oil war with the Saudis to create issues with the United states? It clearly is having a major impact on our oil production companies here in the states. The temporary loss of revenue for both Russians and Saudis will recover quickly when our companies oil volumes dwindle. I know it a conspiracy theory but those guys always have a screwed up agenda.
  • Sam Johnson on March 11 2020 said:
    This is bs we pay enough at the pumps people are sick and tired of the billoners making billions and the consumers paying for it get off tour high horses and drop the prices theres no reason why you charging high prices for something your all ready making millions y'all are greedy greedy greedy
  • Nessy Oil on March 11 2020 said:
    I wonder if the Russians have covered their shorts on the market yet. Ah the wonders of the free market. How much you think they made on those trade. Especially roseneft
  • Matthew Biddick on March 11 2020 said:
    If this new and shocking price environment persists for most of this year, (heaven forbid it lasts longer!) then there will most assuredly be a significant, drastic, or even shocking, decline in American crude production (and liquids/natural gas). The American horizontal industry needs to lay down rigs, and fast. They all have decent to good production. Just become producers for the rest of this year, and perhaps into 2021. They'll realize a better price and they can use their savings to pay down debt. Perhaps they'll live to fight another day albeit in a lower weight class.
  • Jeff Lawrence on March 11 2020 said:
    If you had ever been involved in an oil & gas bankruptcy / insolvency - or watched an interested outsider - you would know that as the firm enters that "zone of insolvency" they ramp up production to service as much debt as possible. Once the firm crosses over into technical bankruptcy, and the firm's fiduciary duty focuses on the interests of lenders, there will be still more pressure to produce oil (without consideration for the time value of money, future price curves and/or the need to pay a return to equity). This is all fairly basic stuff that can be seen over and over again in the history of the energy sector. I am frankly surprised you are not aware of this.

Leave a comment




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