Factors Keeping US Shale Producers in Business

The resilience of U.S. oil production has been fueled by a number of factors. First, the cost of drilling keeps getting cheaper thanks to technological innovations made by shale companies and price cuts by servicing firms that provide the drilling equipment.

Secondly, U.S. shale drillers have become vastly more efficient by only drilling their best wells.

There’s also the “ostrich phenomenon.” That’s what Tom Kloza, global head of energy analysis at the Oil Price Information Service, calls U.S. oil producers who continue to aggressively pump oil — in effect digging their head in the sand — rather than admit that prices may remain cheap for a long time.

“Ultimately, they’re going to cut enough, but we’re not there yet. We’re not even close to it now,” said Khoza.

And then there’s the financial pressure to continue pumping. For many companies that borrowed heavily and sunk lots of money into oil wells, it may make more sense to keep pumping, for now at least.
Kloza compared the situation to a struggling restaurant owner deep in debt who suffers a slowdown in business.

“It’s tough to shut down. You’ll keep hope alive for a long time — if only to pay the rent,” he said.

via CNN

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza