Oct 12, 2020 - Energy & Environment

Oil's chilly season

Data: Federal Reserve Bank of Kansas City; Chart: Axios Visuals

Oil prices can't seem to reach escape velocity, spelling more pain for producers as the COVID-19 pandemic continues to weigh on demand.

Why it matters: The chart above provides a glimpse at why prices remain too low to pull the U.S. sector — which is seeing rising bankruptcies — out of jeopardy.

  • It's from the Kansas City Fed's latest quarterly survey of producers in its district, which includes Wyoming, Oklahoma and Colorado.
  • It shows how the surveyed companies, on average, see prices staying below what they need for profitable new activity for a long time.
  • “District drilling and business activity rose slightly in Q3 from historic lows earlier this year, but revenues, employment, and capital expenditures continued to decline,” said Chad Wilkerson, an economist with the bank.

Driving the news: Prices have given up their modest gains last week and fell on Friday too.

As of this morning, WTI is trading slightly under $40-per-barrel, the range where it has basically been stuck since June, while the global benchmark Brent crude is off slightly to $42.22.

The big picture: Recent days have seen new supplies heading into the market, creating fresh downward pressure even as the pandemic rages, analysts say.

It's due to some Gulf of Mexico production coming back after Hurricane Delta, an industry strike ending in Norway, and production resuming in a key Libyan field.

The bottom line: CFRA equity analyst, quoted in the Financial Times, notes prices have only moved from "awful to mediocre,” which leaves many U.S. shale companies "simply skirting break-even."

Go deeper