Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

With Oil Prices Falling, Can Shale Drillers Survive? Here's What To Watch

By Investing.com (Ellen Wald)CommoditiesAug 08, 2019 05:13
ca.investing.com/analysis/with-oil-prices-falling-can-shale-drillers-survive-heres-what-to-watch-200430681
With Oil Prices Falling, Can Shale Drillers Survive? Here's What To Watch
By Investing.com (Ellen Wald)   |  Aug 08, 2019 05:13
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

Oil prices have been dropping again, driven down by fear that the U.S.-China trade conflict won’t be resolved and will plunge both countries into oil-demand-killing recessions. At the same time, oil production in the United States remains strong, at about 12.1 million bpd, and it is expected to climb to 13 million bpd by 2020.

Oil prices have been dropping again, driven down by fear that the U.S.-China trade conflict won’t be resolved and will plunge both countries into oil-demand-killing recessions. At the same time, oil production in the United States remains strong, at about 12.1 million bpd, and it is expected to climb to 13 million bpd by 2020.

Crude Oil WTI Futures Weekly Chart
Crude Oil WTI Futures Weekly Chart
Crude Oil WTI Futures Weekly Chart
Crude Oil WTI Futures Weekly Chart
Crude Oil WTI Futures Weekly Chart
Crude Oil WTI Futures Weekly Chart

Crude Oil WTI Futures Weekly Chart
Crude Oil WTI Futures Weekly Chart
Crude Oil WTI Futures Weekly Chart
Crude Oil WTI Futures Weekly Chart
Crude Oil WTI Futures Weekly Chart
Crude Oil WTI Futures Weekly Chart

With WTI now in the low $50 per barrel range, however, will fracking companies be able to maintain their current rate of production? And what if the prices head even lower?

With WTI now in the low $50 per barrel range, however, will fracking companies be able to maintain their current rate of production? And what if the prices head even lower?

The truth is, we don’t really know if investor appetites are strong enough to continue pouring money into fracking companies. A number of factors could influence investing decisions including, interest rates and the availability of other appealing business ventures. Here’s what we do know:

The truth is, we don’t really know if investor appetites are strong enough to continue pouring money into fracking companies. A number of factors could influence investing decisions including, interest rates and the availability of other appealing business ventures. Here’s what we do know:

The Price Of Shale Oil Matters

The Price Of Shale Oil Matters

According to the Dallas Federal Reserve, shale oil companies, in general, must sell their oil for an average of $50 per barrel to be profitable. The exact price varies largely by region. While drillers in the Permian need only $48 per barrel, drillers in the Eagle Ford area require $51; those in some areas of Oklahoma need $53 per barrel.

According to the Dallas Federal Reserve, shale oil companies, in general, must sell their oil for an average of $50 per barrel to be profitable. The exact price varies largely by region. While drillers in the Permian need only $48 per barrel, drillers in the Eagle Ford area require $51; those in some areas of Oklahoma need $53 per barrel.

Based on this research, as long as oil prices don’t dip into the $40s, shale oil companies should be able to continue to drill and to expand drilling operations. It helps that more pipeline capacity is coming online in 2019, and these companies have drilled-but-uncompleted wells (DUCs) that can be cheaply and easily put into production.

Based on this research, as long as oil prices don’t dip into the $40s, shale oil companies should be able to continue to drill and to expand drilling operations. It helps that more pipeline capacity is coming online in 2019, and these companies have drilled-but-uncompleted wells (DUCs) that can be cheaply and easily put into production.

If prices remain in the low $50s, production may persist but serious profits will not. According to the Wall Street Journal, even companies that tout breakeven in the $40 range require pricing above $50 per barrel to make a profit. This is because the “breakeven price” usually doesn’t include the costs of land, overhead and transportation.

If prices remain in the low $50s, production may persist but serious profits will not. According to the Wall Street Journal, even companies that tout breakeven in the $40 range require pricing above $50 per barrel to make a profit. This is because the “breakeven price” usually doesn’t include the costs of land, overhead and transportation.

However, the shale oil industry is significantly more consolidated now than it was during recent price downturns. The big-name producers that dominate the industry— Chevron (NYSE:CVX), Chesapeake Energy (NYSE:CHK), ExxonMobil (NYSE:XOM), Occidental (NYSE:OXY) and Pioneer Natural Resources (NYSE:PXD)—are better equipped to weather low prices, even at a loss.

However, the shale oil industry is significantly more consolidated now than it was during recent price downturns. The big-name producers that dominate the industry— Chevron (NYSE:CVX), Chesapeake Energy (NYSE:CHK), ExxonMobil (NYSE:XOM), Occidental (NYSE:OXY) and Pioneer Natural Resources (NYSE:PXD)—are better equipped to weather low prices, even at a loss.

The Impact Of U.S. Production

The Impact Of U.S. Production

Nevertheless, as the price of oil flirts with that breakeven line for many shale firms, it is important to keep an eye on news of closures, mergers and mothballing. While the oil markets are focused on trade negotiations and demand, the current unprecedented amount of U.S. production is probably the second most important dynamic in the market. If U.S. production drops because of low prices, the market will react.

Nevertheless, as the price of oil flirts with that breakeven line for many shale firms, it is important to keep an eye on news of closures, mergers and mothballing. While the oil markets are focused on trade negotiations and demand, the current unprecedented amount of U.S. production is probably the second most important dynamic in the market. If U.S. production drops because of low prices, the market will react.

With Oil Prices Falling, Can Shale Drillers Survive? Here's What To Watch
 

Related Articles

Andy Hecht
Crude Oil Is Heading For Triple Digits By Andy Hecht - Jan 28, 2022

This article was written exclusively for Investing.com WTI crude oil eclipses October 2021 high Brent crude oil moves above long-term technical resistance level US energy policy is...

With Oil Prices Falling, Can Shale Drillers Survive? Here's What To Watch

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email