HOUSTON (Reuters) – A decision by OPEC and affiliated countries to cut crude oil production through March presented a late Christmas for US shale firms whose costs have declined, but unexpected moves to prices Any increase can be just a minor stocking item.
US crude oil production has fallen by 2 million barrels per day in the form of lower prices in the past year and producers have been forced to cope with the decrease in demand. Investors were already pressuring the industry to curb expenses and increase returns before the epidemic. As prices continue to rise, production is cut quickly, but may return quickly.
Saudi Arabia, the world’s largest oil exporter, said on Tuesday that Russia voluntarily reduced its production by 1 million barrels per day (bpd) in February and March to increase production, with the US shell capitalizing on the group’s cuts Worried about.
Russia and Kazakhstan will increase their production, reluctant to market share of the United States. Overall, OPEC + was due to restore 500,000 bpd each in two months. Saudi officials believed the demand for the new increase would increase during the new coronovirus lockdown.
On Friday, prices for West Texas Intermediate hit $ 52 per barrel and the top-12-month futures price, which manufacturers use to plan on new wells, hit $ 51.37 per barrel, up from $ 44.63 in early December .
Bottom line for profit
Crude oil prices will fall directly on the bottom lines of American producers. The companies resolved to keep production flat and use any value addition to increase investor returns or pay back debt.
(For a chart on the decline in US oil production, go here 🙂
Cimarex Energy chief executive Thomas Jordan said, in recent years, rising prices have shown a “tendency to be cautious”. “We are going to be highly disciplined in establishing a budget,” he added at a Goldman Sachs conference on Thursday.
According to data firm Ristad Energy, among the top two US shale fields, oil and gas companies are profitable in the range of $ 30 per barrel to $ 40 per barrel. This year’s high prices could push Shell Group’s cash from operations up to 32%, Ristade said.
Another factor that will benefit producers is the low-cost service to the oil sector. Additional capacity of companies that provide fracking sand and services cut fees and have not been able to increase them.
“Margins are terrible,” said Chris Wright, chief executive of Liberty Oilfield Services, the second-largest fracking company in North America. “They are a little better now then they were six months ago, but they are still terrible.”
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Freedom has put existing customers through an epidemic, but pricing is so low that it makes no sense to go after new customers. He said demand for breakdown of services is improving, but levels that boost US shale production are declining.
Chalet growers have historically raised production budgets with rising oil prices, said Linda Hettin, senior research manager at consultancy Wood Mengendi. But “this time is probably a little different” because global demand remains uncertain, she said.
Raul LeBlanc, vice president of data provider IHS Markit, said that oil would have to hit $ 60 to $ 65 per barrel to restore US production to 1 million barrels per day.
In a Federal Reserve Bank poll of Colorado, energy officials in Colorado, Oklahoma, Wyoming and northern New Mexico released on Friday that the above oil prices would average $ 56 a barrel to significantly increase drilling.
A senior director of analytics firm Enverus, Serp Ozkan said the industry withdrew so much activity last year that working in the oil sector this year would mean “mitigation of decline rather than growth”.
Reporting by Jennifer Hiller in Houston; Editing by David Gregorio