US oil price plunge means the end of Trump's 'American shale' revolution
A historic crash in crude prices is driving US shale into full-on retreat with operators halting new drilling and shutting in old wells, moves that could cut output by 20% for the world’s biggest producer of oil and leave thousands of workers unemployed.
For shale companies, the price of West Texas Intermediate crude went from hunker-down-and-ride-it-out mode to crisis mode in just a few days, with many now unsure whether there will even be a market for their oil.
Some 1.75m barrels a day is at immediate risk of shutting down while the number of new wells being brought online is forecast to plunge almost 90% by the end of the year, according to IHS Markit.
In short, it’s a swift and brutal end to the shale revolution, which last year had US president Donald Trump proclaiming “American Energy Dominance”.
West Texas Intermediate crude prices turned negative for the first time in history on Monday, meaning at one point sellers had to pay buyers to take it away.
Then, the financial squeeze on the May contract spilled over to June and into the wider market, with prices now trading around $14 (€13) a barrel, well below the daily pumping cost in large swaths of America’s oil industry.
Even at $15, “everything back in the field, except the newest and most productive wells, is losing money on a cash-cost basis”, said Raoul LeBlanc, a Houston-based analyst at IHS Markit. “At this price you’ll start shutting in large amounts of production.”
Operators are switching off wells, retiring one in three drill rigs, abandoning fracking, laying off 51,000 workers, slashing salaries and even going bankrupt just six weeks after the latest price plunge began.
Now, with the coronavirus pandemic destroying demand, storage is just weeks away from filling up, a further factor choking back output.
Publicly-traded companies have axed over $31bn from drilling budgets, while distressed debt in the US energy sector has jumped to $190bn, up more than $11bn in less than a week.
