Mar 26, 2020 - Energy & Environment

Sobering news for the U.S. oil industry

Adapted from Federal Reserve Bank of Dallas; Chart: Axios Visuals

A new report from the Dallas Fed offers a sobering look at how much the oil price collapse and falling demand are going to batter the U.S. industry.

Driving the news: Their survey of oil companies showed that many need oil prices far higher than today's low prices to profitably drill new wells.

  • A separate part of their quarterly report shows that for some companies in some regions, prices are now below what's needed to profitably operate existing wells.

Why it matters: Shale producers — both majors and independents — are planning to sharply pare back spending. Steep job losses loom in the drilling services industry.

What's next: The chart helps explain why U.S. production is slated to begin falling, though it'll take a while.

  • "We expect the recent steep decline in prices to start showing in U.S. oil production data by July, as [well] completion activity is sticky over the very short term, primarily due to hedging," Barclays analysts said this week.
  • The Energy Information Administration sees U.S. production starting to slide in Q3, and fall to an average of 12.66 million barrels per day next year compared to roughly 13 million this year.
  • Their next forecast will show up in early April and could show even deeper projected declines.

Go deeper: Oil giants announce steep cutbacks

Go deeper

OPEC-Russia oil price war escalates as Saudi Aramco announces supply increase

Data: Money.net; Chart: Andrew Witherspoon/Axios

The new oil price war escalated Tuesday as Saudi state oil giant Aramco announced, per reports in Reuters and elsewhere, that it plans to supply the market with 12.3 million barrels per day starting next month.

Why it matters: The increase underscores how the lunge for market share with the collapse of the OPEC+ agreement is going to create financial pain and problems for producers and governments worldwide.

Trump to buy oil for nation’s strategic reserves

President Trump. Photo: The Washington Post / Contributor

President Trump will direct the Energy Department to buy oil for the nation’s strategic stockpile to boost prices and help the oil industry reeling after the market’s historic collapse this week.

The big picture: America’s Strategic Petroleum Reserve was created in the 1970s to ensure the U.S. has oil in case of an emergency. Today, Trump is buying oil for the reserve because of an emergency.

Oil prices plunge as market absorbs OPEC-Russia split

A Kuwaiti trader checks stock prices at Boursa Kuwait in Kuwait City, on March 8, 2020. Photo: Yasser Al-Zayyat/AFP via Getty Images

Oil prices nosedived to four-year lows Sunday as trading resumed after Friday's collapse of the OPEC-Russia production-limiting pact, a rupture slated to increase supplies at a time when the novel coronavirus is sapping demand.

The state of play: The immediate 31% collapse when trading resumed last night was the second-largest on record behind the 1991 Gulf war, Bloomberg reports.