Will US shale companies survive at $ 40 oil price?
US, WASHINGTON (ORDO NEWS) — After WTI went into negative territory on April 20, it showed a sharp rebound. It was such a fast take-off that it is possible to talk about the best WTI price indicators this month, notes Pippa Stevens from CNBC. Nevertheless, many analysts and other observers avoid premature optimism. And they have every reason for this.
WTI is currently trading at $ 35 per barrel. A month ago, oil was at around $ 13 per barrel. This can be called a noticeable improvement or an incredible rally. Nevertheless, this take-off did not take place on its own, but after a rapid reduction in production and the gradual lifting of quarantine measures in the USA and other regions, as authorities in many parts of the world came to the conclusion that the worst with regard to the coronavirus pandemic is already behind.
With such a significant reduction in oil production and increased demand for oil, it is only a matter of time before prices return to pre-crisis levels above $ 50 per barrel.
Demand may grow, but it does not grow as fast as oil bulls would like. In fact, experts predict that the most that the bulls can hope for in the near future is $ 40 per barrel, and not before the third quarter.
Therefore, it is not worth waiting for WTI to reach $ 50 or $ 60 now, but in the long run it may well reach these levels. Of course, this is an unstable period. No one can say whether the second wave of COVID-19 infection will begin on a scale that again goes beyond one region.
This is a big uncertainty that puts pressure on prices. Also, no one can say with certainty whether the second price war will begin within the framework of OPEC + or between OPEC + and other manufacturers, especially the United States
Amid such great uncertainty, it is not surprising that the WTI or Brent rebound did not appear anymore. Good news about demand, an increase in imports of Chinese oil and plans to increase storage facilities for oil turned out to be insufficient for prices to exceed $ 30 per barrel. Even the statement by the head of the IEA about whether the demand for oil had not reached a peak could not do this.
“Without a tough government policy, a sustained economic recovery and low oil prices will bring world oil demand back to where it was,” said IEA Executive Director Fatih Birol.
However, not all industry representatives agree with this. BP CEO Bernard Looney said this month that it might be worth preparing for a peak in oil prices.
In short, uncertainty is the factor that now affects oil markets. And so it will continue for some time. Oil supplies may decline longer than previously thought. In this case, it will be possible to talk about an increase in oil prices.
Shale bankruptcies are growing in the United States. Already 17 companies have filed for bankruptcy, and by the end of the year 73 shale companies may go bankrupt according to Rystad Energy.
This will limit production for a longer period or until colleagues of these companies again begin to make a profit. Then production will begin to grow. If this happens before demand recovers, another drop in prices will occur. However, no one knows when exactly demand will recover.
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