US shale sector: how to survive and not harm?

US, WASHINGTON (ORDO NEWS) — The US shale sector is still drowning in the oil crisis. During the week, the number of drilling rigs producing oil decreased by another 34 – to 258 units – this is the minimum value since 2009. 23 towers stopped working at the largest Perm field, and now only 178 remain active.

Mining, as previously noted, is also falling, but not so fast. The states still produce about 11.5 million barrels per day.

The oil market survived the nightmarish 2 months, and there is nothing surprising in the fact that the American market had a pretty hard time. Many small companies work there, many of which are now forced to go bankrupt and fire people.

However, in the global market the situation is gradually stabilizing. Demand is slowly but recovering, and oil producers are cutting production.

Moreover, on Monday, Saudi Arabia announced an even greater decline in production. The state-owned company Saudi Aramco will produce 7.5 million barrels per day, although back in April the volume of oil recovered was 12 million barrels.

And although the Saudis lost the first place in terms of production to the United States precisely because of the shale revolution, their decisions and actions still have a key impact on the market. Largely because of Saudi Arabia, oil futures quotes at the beginning of the crisis accelerated the decline, but now they have gone up. By the way, futures for the North Sea Brent mixture completed the week near $ 33 per barrel.

However, there are still a lot of problems ahead, and the risks remain.

As Igor Stremoukhov, senior partner of FP Wealth Solutions, notes, there is a danger of a second wave of the COVID-19 pandemic, which can lead not only to multiple illnesses and deaths, but also hit the oil market. These things are interconnected.

At the same time, he notes that the restoration of the economy and demand for hydrocarbons leaves a chance for the shale industry to revive.

“We have already seen this more than once. As oil prices begin to rise, shale companies resume operations. This time, however, everything is much more complicated – the financial conditions for such borrowers have tightened, so many simply cannot afford to find the means to continue their activities.”

In addition, attempts to increase production by all means will be extremely short-sighted.

“The pricing environment is just beginning to improve, and any increase in production can bring all positive to nothing. Do not forget that in recent months, world oil reserves have grown very much, and it will take a lot of time to stabilize and balance the market, ”says Ostromoukhov.

But this is one of the problems, the USA is not Russia or Saudi Arabia. The state cannot instruct oil companies to pump or not pump oil. All manufacturers are independent, and their decisions are dictated only by their own vision of the current situation.

This is partly why the US shale sector now, of course, poses a certain threat to the entire market. While some countries are cutting production as part of the deal, Americans can reverse the recovery process.

They need to be extremely careful in their decisions, otherwise they themselves will be covered by another wave of price reductions.

Thus, in order to survive, the shale sector needs to moderate its ambitions and decide on its own to reduce oil production.


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