Americas News
Have Bunker Prices Hit Bottom? New Report Says US Shale Producers Can Prosper With Oil at Sub $30/bbl Prices
The Organization of the Petroleum Exporting Countries (OPEC) may have a much tougher time trying to quash U.S. shale production than originally thought, if new numbers released by Bloomberg Intelligence are any indication.
OPEC has persistently maintained its high output into a grossly oversupplied market in an effort to maintain market share and drive U.S. shale oil from the market - a strategy that has seen crude dip below $30 per barrel and sink bunker prices last month in major hubs such as Rotterdam and Houston as low as $109 per metric tonne (pmt), according to Ship & Bunker data.
While some analysts have said there are "plenty of signs" the strategy is working, a new Bloomberg analysis reveals that many shale patches in Texas remain profitable with crude prices below $30 per barrel, and that the average well in DeWitt County's Eagle Ford formation can be profitable even if crude drops to $22.52 per barrel, which is $4 below 2016's lowest level to date.
While drillers in some regions of the state (such as Dimmit County) require $58 oil, at least nine areas have break-even costs at $30 or less, which partly explains why US crude output in the last week of January was 9.2 million barrels, the highest January level since 1971 and down just 5 percent from last year's peak.
William Foiles, analyst for Bloomberg Intelligence, states, "It may be harder to kill many U.S. E&Ps than analysts originally thought; the wide range of break-evens undermines efforts to come up with a single threshold for U.S. shale producers."
Foiles and colleagues assessed everything from average output per well to local school tax rates to calculate break-even costs, which can fluctuate significantly even within regions, depending on who is drilling and the quality of rock being drilled.
Bloomberg notes that for wells that have already been drilled but not yet fracked, prices above $14 would justify the process in Reeves County; meanwhile, Kathryn Downey Miller, a principal at BTU Analytics LLC, says about 45 percent of wells drilled in DeWitt in 2014 would have been profitable with oil below $20.
As for the many shale producers who have suffered from OPEC's high output strategy, Miller says, "The good news is we're primed and ready for when we need to see a return to activity in North America.
"This lower price environment is making companies defer big oil projects, so there will be an opportunity for U.S. shale producers to contribute to production growth, and they'll be better able to compete than they've ever been."
These findings follow reports last week of abundant signs that OPEC's high output strategy is wreaking havoc amongst U.S. shale producers.
