US Shale Oil Cutbacks To Affect Supply Soon

Shale oil producers are throttling back so quickly on drilling that U.S. crude output could fall sooner than expected, within months, executives say as they slash costs to cope with tumbling crude prices and compete with Persian Gulf rivals.

About a dozen chief executives who talked to Reuters or who spoke publicly, acknowledged they were taken aback by the scale and speed of the cutbacks, noting how this oil price downturn was different from several previous episodes in their careers.

For one, companies are cutting costs deeper and faster than before as Wall Street investors increasingly place a premium on capital discipline rather than just production growth. Some also say the nature of shale makes it easier for companies to defer work and wait for prices to recover. The wells that drove the U.S. energy boom of the last decade rapidly deplete, so overall output will fall unless new holes are constantly bored and oil extracted via hydraulic fracturing, or fracking.

“The thing that has surprised me … is that companies large and small, financially strong, financially weak have really cut capital spending much quicker than I have seen before,” said Bruce Vincent, who retired as CEO of Swift Energy Co this month after 40 years in the industry.

Just few weeks ago, the prevailing view among industry insiders and analysts was that U.S. oil production would keep rising for several months despite falling rig numbers because of rising productivity of active wells and drilling inertia.

In the past, if a producer had a rig contract, they would continue drilling. Now, producers are paying fees to break those contracts, a fact that has hastened the steep drop in the rig count, said Vincent.

via Reuters

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

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 has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. 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