In brokering the end to the global oil-price war last month, the Trump administration assured leaders that America’s shale patch would throttle back production. But few expected that the cuts would run this deep — and happen so quickly.
Drillers are laying down rigs and shutting in wells at a frantic pace in response to the plunge in oil prices caused by the coronavirus pandemic. A week after West Texas Intermediate crude settled below zero for the first time ever, analysts at JPMorgan projected that the U.S. would cut output by 1.5 million barrels a day by June. Two weeks into May, production is already down by at least that much and continues to decline.
As a result, oil storage tanks that were in danger of brimming over got a break last week when inventories shrank for the first time since January. The market has noticed: WTI for June delivery rallied to near $30 a barrel on Friday, up from $10.01 when it became the prompt contract on April 21.
“We were already in the midst of a transition away from high growth into slower growth,” Raoul LeBlanc, a Houston-based oil expert at IHS Markit said by phone. “We just got cut off at the knees.”
The declines include 758,000 barrels a day of announced reductions in the U.S. by some of the country’s biggest producers including ConocoPhillips, Continental Resources Inc. and Chevron Corp., according to data compiled by BloombergNEF.
More than 500,000 barrels a day of production in the Bakken region of North Dakota and Montana has been shut in. Daily output from Alaska’s North Slope is down by about 100,000 barrels from early March.