• Oil producers all over the world are struggling with a slump in demand that has driven the lower-for-longer price forecasts.
  • High-cost producers are between a rock and a hard place as they have to adapt to a lower price environment.
It has been a busy few days for oil price spotters: first BP revised down its long-term oil price projection to $55 per barrel of Brent crude, and then the U.S. Energy Information Administration said it expected Brent to average $37 a barrel in the second half of this year and $48 a barrel in 2021.  That is just bad news for the long term and bad news for the short term.

It is worth noting early on that every oil price projection is nothing more than a prediction. Nobody knows where oil prices will be in a year, let alone in three decades.

BP’s CEO himself has made a point of noting that in several interviews. Nevertheless, oil price projections are still being made, based on current demand and supply patterns and expectations of how these patterns will change over a certain time. And if these latest projections materialize, high-cost producers have much work ahead of them.

The supply and demand pattern for oil in 2019, according to BP, was not particularly optimistic. That was before the oil price war in March and the pandemic that led to a collapse in demand. Last year, BP said, oil consumption globally grew by just 900,000 bpd. Supply, on the other hand, fell by a modest 60,000 bpd because—and this is important—strong growth in production in the United States offset the more than 2-million-bpd output decline in OPEC.

That U.S. shale threw a wrench in the works of OPEC is a fact. It has captured a lot of higher demand over the past few years at the expense of OPEC members, most of whom depend on their oil revenues to break even fiscally. In fact, according to data cited by Reuters’ John Kemp, U.S. producers have captured most of that new demand.

U.S. oil production, Kemp noted, has been growing a lot faster than consumption. “As a result, U.S. oil producers have captured between two-thirds and three-quarters of all the growth in global oil consumption over the last ten years, leaving little for other countries.”

But U.S. shale is now in shambles because of the double shock from the Saudi-Russian price war and the coronavirus pandemic. Banks are growing increasingly unwilling to lend on a reserve-backed basis as they fear losses, and instead are cutting shale producers’ access to much-needed cash, the Wall Street Journal reported earlier this week. Bankruptcies are mounting, with the latest victim of the crisis none other than Chesapeake, one of the shale pioneers and biggest independent players in that field.