Will American shale oil go bust?

by Jorge Guira; Source: The Conversation

US oil is suffering unprecedented distress, as demonstrated by the benchmark West Texas Intermediate (WTI) crude price crashing into negative territory.This isa “tripleblack swan” of an oversupply of oil driven byOpec and Russia, COVID-19 demand destruction, and having nowhere to store it.

Oil traders reacted on April 20, the day that May forward contracts for WTI crude were due to settle. Many offloaded their contracts at any price to avoid taking delivery of oil they couldn’t store, and the May WTI price plunged to US$-37.53 (£-30.36). Now attention has turned to the June price, which is just under US$15, still the lowest in decades.

Though prices will rebound, the bigger question concerns long-term viability. US oil companies have feasted on a decade-long diet of rampant liquidity thanks to very low short-term interest rates and quantitative easing. With many able to finance and refinance drilling with a breakeven price of US$40 and above per barrel?, this brought into play lots of shale oil, whose fracking requirements are far costlier than basic onshore oil.

Read full article: The Conversation