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Will US Shale Oil Production See A V-Shaped Recovery?

Will US Shale Oil Production See A V-Shaped Recovery? thumbnail

The news didn’t make much of a ripple when it came out, probably because crude prices were down anyway, though not by much.

But for what it was worth, the latest weekly survey on the US oil rig count released by industry firm Baker Hughes on Friday showed a drop of just one unit. This is quite a remarkable shift from the double-digit drops registered every week just two months ago.

But, one swallow doesn’t make a summer. Likewise, a drop of just one oil rig last week doesn’t mean US crude production is going to come galloping back the following week.

Yet, what we really need to think about is how quickly can drilling earnestly pick up in America’s oil patches, if prices keep rising, week after week, with little fundamental justification?

Daily WTI crude futures

Daily WTI crude futures

With bulls stubbornly defending the 300% rise in West Texas Intermediate prices from April’s historic lows to around $40 a barrel, will a V-shaped recovery—that many are hoping to see in the broader economy after the pandemic abates—be possible in oil production?

Since the COVID-19 pandemic decimated global energy demand, almost every forecast for oil production has called for the death of shale, rather than a revival.

America’s days as the No. 1 oil producer could well and truly be over, we hear. The collapse in the Baker Hughes rig count week after week; increasing well shut-ins, which, we hear, have long-term ramifications of damage to output; and a string of bankruptcies among drillers, such as Whiting Petroleum (NYSE:WLL) and Ultra Petroleum (OTC:UPLCQ) have only reinforced that theme.

Globally too, OPEC’s renewed clout in clamping down on production—and ability to compel US drillers to respect individual country quotas for the first time since the shale boom started six years ago—are all adding to the lower-for-longer narrative in production.

Expect The Unexpected?

But what if the contrary were to happen?

Well, we got the first jolt of surprise last week when the Energy Information Administration reported a substantial 500,000 barrels per day jump in US production estimates for the week ended June 19. Until then, output had cratered by a fifth, from a record 13.1 million barrels per day in mid-March to 11 million bpd.

And now, the trend in oil rigs has almost turned too, after 18 straight weeks of declines that brought the reading from a high of 683 in mid-March to just 188.

Last week’s minuscule decline of one rig would seem to indicate that “a floor was finally within sight” for falling production, buoyed by rising oil prices in recent as operators simply run out of rigs to cut, New York-based Energy Intelligence noted in an analysis on Monday.

To be fair, Abhi Rajendran, research and advisory director at the consultancy, cautions that US oil rigs could still have a bit further to fall, and forecasts for any kind of substantial rebound remain extremely murky.

Rajendran wrote in Energy Intelligence’s Weekly NAVigator report:

“We continue to see an extremely challenged outlook ahead, even with [US oil price benchmark] West Texas Intermediate (WTI) back to $40 per barrel and potentially firming up further from here.”

And while US drillers may have started hedging for higher production at around $40 per barrel, the real remunerative price for many would be closer to $50 and beyond.

Rajendran adds:

“From a rig count perspective, we see a very slow recovery — we see a bottom in total US land rigs around 250.”

He says he expects “only a very few rigs added back for the remainder of 2020, and a rise to roughly 500 land rigs over the course of 2021.”

Yet, if there’s one thing shale has never failed at in the past, is its ability to surprise. And that surprise has often involved higher, rather than lower output.

Very Few Drillers Are Actually Shutting Wells

Resilience, a community blog on the “Peak Oil” theory, argues that contrary to popular thinking, drillers in shale patches may not necessarily be rushing to shut-in wells because this would permanently damage production.

Therefore, with wells kept open, though at a reduced rate of activity, there was room for production to surprise on the higher side, it suggested.

The blog explains that to shut down a well, a special rig is used to pump heavy “mud” fluid down the hole to stop the flow of oil and gas, penetrating the reservoir. This will make restarting more difficult by potentially causing permanent formation damage, and changing the pressure below. After the mud, a metal plug is cemented into the hole to stop the flow of fluid. Metal pipes and equipment left in the hole may corrode while the well is shut in.

When the well restarts, another rig drills out the cement and heavy mud. With any luck, oil will flow again. If not, more solutions are deployed, such as well treatment, re-perforation, and re-fracking at great expense, once a crew can be found, that is. After the last price collapse, crews weren’t available for a year or two.

The blog said:

“Trying to bring a well back can cost a lot of time and money to return it to full or partial production, without remediation a well might return to just half of its previous performance.”

“This is why even heavily indebted shale companies, including bankrupt ones like Whiting Corp, insist on continuing to pump at all costs, and California Resources (NYSE:CRC), which despite owing $4 billion in 2022 is keeping its wells going, with a continuous injection of steam to keep them alive at great cost.”

So, again, is a V-shaped recovery possible in US oil production?

The answer appears to be “no,” though with shale you can never tell. Watch those weekly EIA numbers very closely.

19 Comments on "Will US Shale Oil Production See A V-Shaped Recovery?"

  1. Famlin on Tue, 30th Jun 2020 2:15 pm 

    US Oil production may recover, but the consumption may never.
    Highest consumption was in 2005, and in the next 14 years, despite a 14% increase (compounded) in population, oil consumption has not hit that level.

    Here are few reasons.
    Oil fired power generation/heating was replaced by gas, renewable …
    Petrochemical usage is probably flat with plastic bags replaced by tote bags.
    Transport sector: vehicles have become lot more fuel efficient for these reasons.
    turbo engines with 6, 8, 9 speed tranny
    hybrids, plugins, electric vehicles
    unibody framed crossovers taking share away from truck based suvs.

  2. Famlin on Tue, 30th Jun 2020 2:16 pm 

    Teslas market cap has overtaken exxons market cap today in a symbolic move away from oil.
    Good bye oil.

  3. SocialRevolutioniComing on Wed, 1st Jul 2020 6:08 am 

    Love everything that is happening right now. I love the chaos that is happening in Whites Western nations.

    Fuck Canada, fuck UK, fuck France, fuck Germany.

    If you want a new civilization asked the brown diversity to build you one. Whites diversity has checked out and we don’t care.

  4. SocialRevolutionComing on Wed, 1st Jul 2020 9:05 am 

    This is not from me. It is a cut a paste from this video:

    Freeda Mind
    il y a 55 minutes
    Australian military were rolled out in victoria. First called in the media as “commonwealth staff ” not soldiers everyone said to bolster a streched medical team. Only today media states ” door to door surveillance and testing of quarantined zones” .warm fuzzy news-speak for drones and checkpoints. Huge fines and jail time for breaches. Calls for mandatory testing in all media

  5. zero juan on Wed, 1st Jul 2020 9:09 am 

    mindless juanPee:

    SocialRevolutionComing said This is not from me. It is a cut a paste from this…

    Paris Police Give Up Search for “Allah Akbar” Gunman at Mall…MUZZ-19 CONVICT-19 said headline is clearly wrong. when muzz allah akbar a…

  6. SocialRevolutionComing on Wed, 1st Jul 2020 9:23 am 

    They will fail. Whatever they are planning with the COVID hoax, it will fail. We are seeing the end of modernity (electricity, internet, advanced medicine) Something similar to the end of Roman empire. Just watch. They have no real plan. People will either revolt or disengage from society.

    In Québec and Ontario, we are already seeing people disengage from society. People, in Québec and Ontario, are refusing to work in old care home. They had to be staffed by the Red Cross. Whites people are now disengaging from society. Similar to what happened to the end of the roman empire.

    Never thought , I will see the end of Western civilization and Whites people abandoning it.

  7. SocialRevolutionComing on Wed, 1st Jul 2020 3:40 pm 

    Checking if there is filter on here.


  8. joe on Wed, 1st Jul 2020 4:04 pm 

    SocialRevolutionComing on Wed, 1st Jul 2020 9:05 am
    Victoria is being locked down because its a haven for China. The governor of Victoria signed a Belt and Road initiative contract for the port there on the day that Australia was supposed to rise up against China over convid19. Even since then Australia’s federal government has been desperately fighting a rear guard polical action to unifiy Australia but
    Victoria keeps wrecking it. Its even come with its own spy scandal.


    Check this to see more detail. Its a patch work lockdown, that is based on post codes, not outbreaks (?). Are we being protected from random terorists attacks, stay at home orders means no risk of stadium bombs or mass beer poisoning on weekends etc. The whole narrative of socialism is being imposed from above makes little sense to me since it would be popular to do so, in fact if that WERE the plan I believe Trump would be the first guy to do it, BoJo did it and he swept the board in 2019.

  9. SocialRevolutionComing on Wed, 1st Jul 2020 5:08 pm 

    I think the Chinese communist control the World Economical Forum. The World Economical Forum has a big office in China.

    The chairman of the World Economical Forum and Prince Charles must be investigated. The chairman of the World Economical Forum is in admiration with the Chinese surveillance system and social credit system.

    I think they are trying to sabotage Trump reelections. I might write a more detail comment about this late, if I feel like it

  10. SocialRevolutionComing on Wed, 1st Jul 2020 6:09 pm 

    shorttonoil said

    Yes it is a hoax, and it has had the full, total support, and cooperation of every major government in the world, including the Russians. The world is at the end of the fossil fuel age, and it is at the end of the present monetary system, which are hardly justifications for destroying what remains. When the British and its Common Wealth, Germans, Russians and Americans are all working in a synchronized fashion of falling on their swords together something very, very signification must be taking place. A world wide killer pandemic would be justification; if there was one? That is where things begin to get a little dicy, there seems to be a definite shortage of world wide killer pandemics. That leaves few alternatives besides; complete ecological collapse, a total and dramatic climate change affecting the entire planet, major earth core changes, incoming cosmic shock waves, alien contact, and a combination thereof. After that we begin running into a lack of justifications for shutting down the world. What ever it is it is big, and it is coming fast.

    I kind of agree with that. Still funny that Chinesse can still travel to Europe and Americans cannot. Nobody is finding that funny. Is China owning Europe. Sure looks that way.

  11. SocialRevolutionComing on Wed, 1st Jul 2020 6:20 pm 

    Millions in Hong Kong to gain rights to live and work in UK – BBC News

    Is China owning UK. UK is such a pathetic shit hole

  12. CONVICT-19 MUHAMAD-9 pedifile 9 years old girl on Wed, 1st Jul 2020 6:27 pm 

    guns are flying off the shelves and due to MUZZ-19 they’re not replenished.

    I hope americans are not afraid but I love bitter clingers at the same time.

    being afraid is lib and lib bag self to love muzz more and lib are DUMB-19 whitey supertard THUNDERF00T-19 AMPUTATE-19
    when he went on self imposed QUARANTINE-19 I said it SMELLZ-19

    anyways, i hope americans are not afraid because i guess it would mean it’s doing long term damages to society

  13. Duncan Idaho on Wed, 1st Jul 2020 6:55 pm 

    How Do We Pry the Confederate Monuments out of Trump’s Tiny Hands?

  14. Duncan Idaho on Wed, 1st Jul 2020 7:21 pm 

    “—on to describe in detail all the ways in which this virus affects the lungs, heart and brain if you’re into that sort of thing. This is the understanding of the disease that may yield some treatments that could save a lot of lives.

    Or, you could follow the president’s advice and drink some bleach. Your choice.”

  15. REAL Dumb on Wed, 1st Jul 2020 7:23 pm 

    We just lost another debate again Davy. On the moderated side this time. kublikhan just Kicked are pussy widdle dumbass.

  16. REAL Dumb on Wed, 1st Jul 2020 9:14 pm 

    MaMa says its pyejammies time agin Davy.
    Maybe when we grow up well be allowed to stay up after dark.

    Nite nite widdle. them juanPeePee nitemares all the time meen We need to see the docter. REAL BAD like.

  17. joe on Wed, 1st Jul 2020 11:23 pm 

    Thom Hartman is a communist. He loves statues……. of Lenin, his dear leader.

    But really he wants to be Stalin. They are merely trying to clear out room for statues of Che Guevara and other racists.

    The Marxist Prolet-Aryan historical analysis.

  18. Abraham van Helsing on Thu, 2nd Jul 2020 2:01 am 

    “Is China owning UK. UK is such a pathetic shit hole”

    Wait until you see that France of yours.
    No, China is not owning the UK. There is no “Friends of China” lobby, having infiltrated the entire spectrum of British politics. They do have a “Friends of Israel” lobby though in the UK. Perhaps a little light starts to burn in that dim brain of yours? No? Probably not.

    “UK unveils ‘special bespoke’ escape route for three million Hong Kong residents as Boris Johnson blasts China over draconian new dissent law branding it a ‘clear and serious breach’ of its autonomy”

    People from city state Hong Kong have the highest IQ in the world and have (therefore) higher incomes than the Brits (well, in HK at least). These people won’t repeat what Muslims have done and build rape gangs or topple statues. Instead they would make a significant mark on Britain. High-end immigrants for a change. For the economy it would be good, for Britishness not so much. But the (((owners))) of the UK don’t give a damn about Britishness. On top of that it is unlikely all 3 million will show up, a few hundred thousand perhaps. They would become a Chinese diaspora, aiming at toppling the communist government in Beijing, comparable to Cubans in Miami. With little clout.

    The Brexiteer reader commentators don’t like the prospect one bit, for good reason:

    Crimp, Southampton, United Kingdom, 18 hours ago

    What about our rights,the people who live here in this country.Have,nt we the right to vote on this and the massive implications it would cause!

    Pro: 455
    Con: 26

    Spoiler: these rights don’t exist.

    Ron., London, United Kingdom, 18 hours ago

    Open borders,just like Labour.

    Pro: 424
    Con: 44

    He gets it. Open Society ideology. Global Britain. Britain = world. Racial communism. Anything else would be nahtzi and we’re all glad we’re not like that.

    hakkaboy, Manchester, 18 hours ago

    3 Million Hongkongers arriving in Britain? Looks like the Conservatives will be voted out in the next Election then.

    Pro: 387
    Con: 34

    Still that clueless, ineradicable belief in demockressy. “We vote our future a la carte”. Sure. NOT. As if Labour would act white nationalist.

    petergren707, rochdale, United Kingdom, 18 hours ago

    Taking back control of our borders looks rather silly now Brexiteers. 3 million plus spouses can legally come to live and work in Britain. That equates to 6-10 Million extra people in Britain.

    Pro: 304
    Con: 24

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