Could Price Decline Cause Shale Producers to Collapse?
June 12, 2020
Crude oil and refined fuel prices fell sharply yesterday by more than 7% along with the US stock market falling by 4% to 5% depending on the index. Prices were under selling pressure as new concerns of an uptick in coronavirus cases in some foreign countries along with Texas, California, Arizona, and Florida. The fear is that fuel demand will take longer than expected to recover.
US Treasury Secretary, Steven Mnuchin, said the US cannot shut down its economy again because of the coronavirus. He stated that another $1 trillion in rescue funds will flow into the economy over the next month. He said he was prepared to go back to Congress for more money to protect jobs and workers, but aid for states would be subject to negotiations with lawmakers.
Genscape reported that crude oil stock held in Cushing, Ok in the week ending Tuesday, June 9th fell by 4,785,855 barrels.
Moody’s said the outlook for the global midstream energy sector was revised to negative for the first time. It said that while structural attributes lend stability to the midstream energy sector, the broader energy industry is dealing with simultaneous demand and supply shocks. It also stated that deteriorating credit quality of much of the midstream energy sector’s customers base, oil and gas E&P companies is a further concern.
The US shale oil industry may collapse due to the sharp decline in oil prices. Australian think tank, the Institute for Economics and Peace warns a low price will affect political regimes in the Middle East, especially in Saudi Arabia, Iraq and Iran. It said the impact of the coronavirus may result in the collapse of the shale oil industry in the US , unless oil prices return to their prior levels.
EIA reported on 6-10-2020 that total US gasoline product supplied (implied demand) rose by 352,000 bpd up to a total of 7.9 million bpd for the week ending June 5th. US gasoline implied demand is down by 22.7% over the past 4-weeks versus last year and down by 16.1% based upon a cumulative daily average versus last year.
EIA reported on 6-10-2020 that total distillate product supplied rose by 584,000 bpd up to a total of 3.302 million bpd for the week ending June 5th. US distillate demand is now down by 18.1% over the past 4-weeks versus last year and down by 10.7% based upon a cumulative daily average versus last year.