Why the American Shale Will Survive the Oil Price War


The future of the petroleum industry, it seems, depends on who you ask. Many insiders and industry experts are crying out for armageddon, while others say the American shale is not only ready for a return, it will be better than ever. Early last month, world oil prices experienced their worst day-long setback in almost 30 years due to a series of unfortunate geopolitical events and a certain virus that you may have heard of. China was the first country to have to do anything but shut down its economy to stop the spread of the coronavirus, and every time something happens to the second largest economy in the world, the rest of the world is sure to feel aftershocks.

First, demand for oil plunged. This sparked talks between OPEC + leaders from Saudi Arabia and Russia to start talks to determine how they would react to the setback. Talks were not going well, to say the least, and the alliance between Russia and Saudi Arabia quickly turned into a total oil price war. It all ended on March 9, when oil prices fell 30%.

“Brent lost $ 15.65 from its weekly close to $ 34.36 a barrel on Monday, while WTI lost $ 14.6 of its value to close at $ 31.13,” reported the NationalFrom the Business section. Since then, the energy industry has been waiting for the stimulus plan with breath, as the experience of the Permian basin has done. tens of thousands of layoffs.

But some are optimistic about a serious rebound. One such entity is Goldman Sachs Group Inc., which believes that “the bruised and bruised American shale industry is poised to emerge a winner from the oil crash,” said Bloomberg. In a March 31 note, Goldman Sachs analyst Damien Courvalin said that “high pressure wells and short shale drilling times mean the industry is well positioned to benefit if the current oil slump causes long-term damage to production capacity, causing a price jump when demand returns.

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Goldman Sachs is not the only group optimistic about oil. Daniel Yergin, Pulitzer Prize-winning oil historian and vice president of IHS Markit Ltd., told Bloomberg in an interview for a previous article that “the companies go bankrupt, but the rocks don’t go bankrupt” and that “when all of this is gone, there will be more people to develop the shale.”

Vincent G. Piazza, a senior oil analyst at Bloomberg Intelligence, even thinks that the shale will not only rebound, but it will also be better than ever. In a scenario similar to Darwinian natural selection, the weakest companies would be eliminated and we will find only the strongest, most efficient and most resilient companies with better technology and better preparation for future market volatility. Weaker companies “will go into better hands,” he said. “The industry will be in much better shape than in 2014-2016. The balance sheet is in much better condition. I would not underestimate the ability of this industry to recreate itself. “

This scenario is not without precedent. In the 2014-16 oil crash, oil prices fell considerably lower than they currently are, and soon after, followed by an unprecedented shale rebound that changed the global energy industry. “The US shale industry shocked the world with its rebound after the bust of 2014-2016,” said Bloomberg, “setting production records that have pushed the United States to the top of the list of oil-producing countries. Ironically, it was the same oil crash of 2014-16 that sparked the alliance between Saudi Arabia and Russia, the merger of which led to the current crash.

By Haley Zaremba for Oilprice.com

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