Shale oil ‘to flood’ market if crude hits $40

The economic woes bedevilling many OPEC countries may just have begun, as US shale oil producers plan to increase output if crude oil price hits $40.

This could force crude oil price to starting falling again.

In 2015, these producers told OPEC that they would produce shale oil effectively and efficiently when global crude oil prices rebound to $60 a barrel.

But according to Reuters, for leading US shale oil producers, $40 is the new $70, with many of them ready to settle for oil production at levels “far less” than their original $60 mark.

The fall in oil prices has been some sort of blessing to OPEC giants like Saudi Arabia, helping them keep market share while frustrating expensive shale oil out of the market.

However, the latest comments from US producers highlight the industry’s remarkable resilience, but also serve as a warning to rivals and traders.

A retreat in US oil production that would help ease global oversupply and let prices recover, but that may not be happening anytime soon regardless of OPEC talks with Russia.

John Hart, chief financial official of Continental Resources Inc (CLR.N), said last week that the company was prepared to increase capital spending if US crude CLc1 reaches the low-to-mid-$40s range, and boost 2017 production by more than 10 percent.

Less than a year ago, Jim Volker, CEO of Whiting Petroleum Corp (WLL.N), said the company was still in spending mode.

Volker said the company might deploy more rigs if US crude hit $70.

That has changed, as the biggest producer in North Dakota’s Bakken formation will stop fracking new wells by the end of March, but would “consider completing some of these wells” if oil reached $40 to $45 a barrel.

While Deloitte auditing and consulting warns that a third of US oil producers may face bankruptcy, leading shale producers say their ambitions go beyond just outrunning domestic rivals.

“It’s no longer enough to be the low-cost producer in US horizontal shale,” Bill Thomas, chairman of EOG Resources Inc, said.

“EOG’s goal is to be competitive, low-cost oil producer in the global market,” he added, saying it had a “premium inventory” of 3,200 well locations that could yield returns of 30 percent or more with oil at $40.

There were 945 such wells in North Dakota, birthplace of the US shale boom in December, compared to 585 in mid-2014 when prices peaked, according to the latest available data from the Department of Mineral Resources.

If these US oil producers get successful with this ambition against OPEC, the world may just be headed for a new war of oil oversupply and fall in black gold.