Tuesday, April 23, 2019
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Shale’s growing profits at mercy of OPEC cuts

Shale’s growing profits at mercy of OPEC cuts

The recent nosedive in crude oil prices came just as shale producers had started delivering healthy returns after years of heavy spending to boost production and market share.
The shift has pleased investors who had grown weary of waiting for a payoff while watching the frenetic west Texas shale boom make the United States the world’s top oil producer and a major exporter.
The 29 percent drop in U.S. crude oil prices since October now threatens those improved margins, and sustained prices below $50 per barrel could dent the value of shale reserves, which banks use to determine borrowing power.
Activity in the largest U.S. oil field could fall 10 to 20 percent next year if prices stay down, said Steven Pruett, chief executive of shale producer Elevation Resources LLC. The price retreat sparked a sell-off of shale firms’ shares and another setback could sour investors on the sector for years.
The dynamic leaves shale producers hoping for a rescue in the form of production cuts from The Organization of the Petroleum Exporting Countries (OPEC) when it meets on Thursday - and at odds with U.S. President Donald Trump, who has pushed OPEC to keep the taps wide open.
Although Trump has generally been a boisterous booster of fossil fuel firms, he has ridiculed the prospect of OPEC production cuts as “ripping off the rest of the world” by artificially inflating consumer fuel prices.
On Wednesday, the president again tweeted that he hopes “OPEC will be keeping oil flows as is, not restricted. The World does not want to see, or need, higher prices!”
U.S. crude futures rose this week and were trading at around $53.34 a barrel on Wednesday on expectations that OPEC would agree to cut output at its meeting.
In November, Trump praised Saudi Arabia on Twitter for high production that helped push oil prices down about 30 percent to near $50, calling it “like a big Tax Cut.”
Such tweets are an “irritant” to a U.S. oil industry trying to solidify its profitable position.
Trump’s “leaning on” Saudi Arabia, the most influential OPEC nation, “has had a great effect,” Pruett said.
“To me, it’s a lot of meddling,” he said.
Trump’s campaign against OPEC cuts comes after he stood by the kingdom and Saudi Crown Prince Mohammed bin Salman despite U.S. politicians calling for sanctions over the October killing of journalist Jamal Khashoggi at Riyadh’s consulate in Istanbul. Prince Salman wants to avoid confrontation with Trump, Saudi watchers say, including over oil production cuts and prices.
While shale producers have made strides in recent years at turning profits with lower oil prices, they are nearing a threshold where some would scale back investment, said Phil Flynn, an analyst at Price Futures Group in Chicago.


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