Shale's struggles will persist despite a rise in oil prices

WTI, the benchmark U.S. oil future, traded Wednesday morning at its highest since early March — highlighting how the worst of shale's crisis is seemingly over, though more bankruptcies likely lie ahead.

Why it matters: Its price at the time — $43 — is still too low for many producers to do well, though it varies from company to company.

• HSBC analysts, in a note this week, said $50 is a key price point.
• "The current price environment is leading to shut-in production being brought back on, but it is not nearly high enough to stimulate a meaningful recovery in new activity in the majority of U.S. shale acreage," they note.

The big picture: "America’s most prolific shale drillers are accepting a fate once anathema to an industry obsessed with growth: Drilling just to ward off production drops," Bloomberg reports.

What's next: Going forward, the picture remains difficult, in part because the country does not have a handle on the pandemic.

• While some shut-in wells are returning to production, total U.S. output is expected to remain far below the pre-pandemic peaks for quite a while.
• The HSBC note this week sees only a "temporary boost" and that "more declines are coming" due to the drilling drop off. Reminder: New shale wells decline very fast.
• They see a potential output rise this month and next, but then: "[T]his period of growth will be short-lived and will not be able to offset the collapse in oilfield activity for long."

What they're saying: Dallas Fed President Robert Kaplan, in an interview with Bloomberg TV this week, points out that the recovery in oil demand has "stalled a little bit" with the growth of COVID-19 cases.

• "I think it is going to take until the middle of 2021 for that excess [oil] inventory to be worked off. You are going to have a very challenging energy industry and oil market, probably for the next 6-12 months depending on how the virus proceeds and how demand recovers," he said.

Catch up fast: The latest round of earnings reports provide a look at how the sector is dealing with the pandemic and its financial toll.

• The big U.S. producer Pioneer Natural Resources posted a $439 million net loss on Tuesday afternoon that reflects the price collapse but also, as Reuters notes, how spending cuts helped "cushion the blow."
• While Pioneer has largely restored output, the company is still keeping some of its production offline due to the "current commodity price environment."
• Another large producer, Devon Energy, yesterday afternoon posted a $670 million net loss, with earnings beating estimates, and announced further spending cuts.

What we're watching: More large producers — EOG Resources and Marathon Oil — report later this week, and the huge independent Occidental's earnings come Monday, while several others have already reported substantial Q2 losses.