Tom Kirkman

US Shale Oil Producers put a floor on oil prices - by being more sensitive to low oil prices

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From a local newspaper here in Malaysia, ... something I hadn't really thought about before.  But seems perfectly logical.

U.S. Shale Oil producers can effectively put a cap on oil prices by madly overproducing when prices rise.  The higher oil prices go, the faster new shale oil production is ramped up, eventually killing oil prices.  Both WTI and Brent.

And the opposite seems true as well.  As oil prices (WTI) dropped, jolting around that magical, psychological barrier of $50, U.S. Shale Oil new drilling got scaled back.  Eventually helping to put a floor on oil prices.

Shale puts a floor on oil prices too — HSBC

One of the factors that capped the growth of crude oil prices at US$86 (RM353.46) per barrel in 2018 was the faster-than-expected growth in shale oil production in the US, especially in the second half (2H) of the year.

What is less talked about, however, is the role that shale could play in putting a floor to prices as well.

A survey by the Federal Reserve Bank of Dallas published on Jan 3 revealed that growth in shale activities slowed significantly in the fourth quarter of 2018 (4Q18).

Its Business Activity Index, which compares quarter-on-quarter growth, slowed to 2.3 in 4Q18 from 43.3 in 3Q18 — the first such slowdown since early 2016 when oil prices bottomed at below US$30 per barrel.

Prior to that, oilfield services companies warned about pipeline constraints, well productivity issues and budget concerns, among others.

But the leading factor was the speedy, unnerving 40% crash in oil prices to US$50 per barrel in December on concerns over slowing global demand and failure by the US to follow through on its tough sanctions against Iran.

Simply put, this means that US shale producers are now more sensitive to low prices.  ...

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