The sharp drop in the oil price since the coronavirus outbreak has left US shale producers hanging on for survival, and dependent on their big rivals in Opec to come to their rescue. US producers do not have a seat at the Opec table, but would cheer if the cartel – due to meet in Vienna this week – decided to deepen output cuts to prop up the oil price. Saudi Arabia, the dominant member of the group, is said to be pushing to remove at least another 1m barrels of production a day.
A lot of cash-strapped US producers are at risk of bankruptcy if Opec goes the other way and decides to fight another battle for market share by keeping the taps flowing. “If I were in their position I wouldn’t be cutting more,” said Doug King, London-based chairman of RCMA Capital’s Merchant Commodity Fund. “I’d sit it out and watch what happens.”
Analysts say US shale production is likely to grow comparatively modestly this year, if at all, which would mark a big change. Last year, output leapt by more than 1.2m barrels a day to a record high of 12.2m b/d, according to the Energy Information Administration, a division of the US Department of Energy.
But however significant all this has been for America’s strategic and economic interests, investors have not been so enthused. US producers absorbed $4oobn of capital between 2008 and 2018 without returning much of it, said Artem Abramov, head of shale research at Rystad, a consultancy. Wall Street has now closed off the capital pipeline, tired of funding a business model that is better at pumping oil than profits. If crude prices – down more than 20 per cent since the turn of the year stay subdued, casualties could emerge.