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A decision by OPEC and allied countries to cut crude production through March has delivered a late Christmas present for U.S. shale firms, which has cut costs, but any rise in prices spurred by the unexpected move could only be a be modest stuffing.
U.S. crude oil production has fallen by 2 million barrels a day over the past year as low prices and demand have forced shale producers to reduce their losses. Investors have already put pressure on the industry to curb spending and increase returns before the pandemic hits. Shale production has declined rapidly, but could return rapidly if prices continue to rise.
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On Tuesday, Saudi Arabia, the world’s largest oil exporter, said it would voluntarily reduce its production by 1 million barrels per day (bpd) in February and March, after Russia insisted on production, with concerns about the US shale that benefit from the group’s cuts.
Russia and Kazakhstan will increase their production, reluctant to cede market share to the United States. Overall, OPEC had to recover + 500,000 bpd in each of the two months. Saudi officials were concerned that new increases would exceed demand during new coronavirus closures.
Prices for West Texas Intermediate rose above $ 52 a barrel on Friday, and the 12-month futures price used by producers to plan spending on new wells reached $ 51.37 a barrel, up from $ 44.63 to the beginning of December.
UNDERLINES TO BENEFITS
Higher crude prices will fall directly among U.S. producers due to recent cost reductions and commitments to keep production flat. Companies have promised to keep production flat and use any price increases to increase investors’ returns or to pay off debt.
Thomas Jorden, CEO of Cimarex Energy, said rising prices over the past few years have been a bit of a mirage. “We are going to be very disciplined in drafting a budget,” he added at a Goldman Sachs conference on Thursday.
OIL QUESTION REACHES ‘PREVIOUS LEVELS DONE’: FORMER SHELL OIL PRESIDENT
In the top two US shale fields, oil and gas companies are profitable in the range of $ 30 per barrel to low $ 40s per barrel, according to data firm Rystad Energy. This year’s higher prices could increase the cash of the shale group by 32%, Rystad said.
Another factor that will benefit producers is low service costs for oilfields. The excessive capacity at companies that provide fractional sand and services reduces the fees and could not increase it.
“Margins are terrible,” said Chris Wright, CEO of Liberty Oilfield Services, the second-largest hydrofracking company in North America. “They are slightly better now than they were six months ago, but they are still terrible.”
ACTIVITY REMAINS DEPRESSION
Liberty has kept existing customers through the pandemic, but the price remains so low that it does not make sense to pursue new customers. Demand for hydraulic fracturing services is improving, but it is not falling below the levels that will increase U.S. shale production, he said.
Shale producers have historically lifted production budgets with rising oil prices, said Linda Htein, senior research manager at Wood Mackenzie. But ‘this time maybe a little different’ because global demand remains uncertain, she said.
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Oil will have to pass between $ 60 and $ 65 a barrel to restore U.S. production by 1 million barrels a day while improving investor returns, said Raoul LeBlanc, vice president of data provider IHS Markit.
Energy executives in Colorado, Oklahoma, Wyoming and northern New Mexico in a poll by the Federal Reserve Bank of Kansas City announced Friday that the said oil prices will have to average $ 56 a barrel to increase drilling.
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The industry withdrew its activity so much last year that the oil field work this year will mean a reduction in declines rather than growth, ‘said Sarp Ozkan, a senior director of the analysis firm Enverus.
(Posted by Jennifer Hiller in Houston; Edited by David Gregorio)