Skip to main content
The Globe and Mail
Support Quality Journalism.
The Globe and Mail
First Access to Latest
Investment News
Collection of curated
e-books and guides
Inform your decisions via
Globe Investor Tools
Just$1.99
per week
for first 24 weeks

Enjoy unlimited digital access
Enjoy Unlimited Digital Access
Get full access to globeandmail.com
Just $1.99 per week for the first 24 weeks
Just $1.99 per week for the first 24 weeks
var select={root:".js-sub-pencil",control:".js-sub-pencil-control",open:"o-sub-pencil--open",closed:"o-sub-pencil--closed"},dom={},allowExpand=!0;function pencilInit(o){var e=arguments.length>1&&void 0!==arguments[1]&&arguments[1];select.root=o,dom.root=document.querySelector(select.root),dom.root&&(dom.control=document.querySelector(select.control),dom.control.addEventListener("click",onToggleClicked),setPanelState(e),window.addEventListener("scroll",onWindowScroll),dom.root.removeAttribute("hidden"))}function isPanelOpen(){return dom.root.classList.contains(select.open)}function setPanelState(o){dom.root.classList[o?"add":"remove"](select.open),dom.root.classList[o?"remove":"add"](select.closed),dom.control.setAttribute("aria-expanded",o)}function onToggleClicked(){var l=!isPanelOpen();setPanelState(l)}function onWindowScroll(){window.requestAnimationFrame(function() {var l=isPanelOpen(),n=0===(document.body.scrollTop||document.documentElement.scrollTop);n||l||!allowExpand?n&&l&&(allowExpand=!0,setPanelState(!1)):(allowExpand=!1,setPanelState(!0))});}pencilInit(".js-sub-pencil",!1); // via darwin-bg var slideIndex = 0; carousel(); function carousel() { var i; var x = document.getElementsByClassName("subs_valueprop"); for (i = 0; i < x.length; i++) { x[i].style.display = "none"; } slideIndex++; if (slideIndex> x.length) { slideIndex = 1; } x[slideIndex - 1].style.display = "block"; setTimeout(carousel, 2500); } //

A pumpjack in the Monterey Shale, California, April 29, 2013. Neighbouring Mexico has an estimated 681 trillion cubic feet of recoverable shale gas resources in deposits that may contain rich pockets of both natural gas and oil, according to the U.S. Energy Information Administration data.

LUCY NICHOLSON/Reuters

The U.S. shale oil boom that contributed to the current global glut is now in rapid retreat, with the production decline expected to hit more than one million barrels a day and the industry facing widespread bankruptcies among smaller producers.

U.S. oil production peaked at 9.7 million barrels a day last April – the highest level since April, 1971, the U.S. Energy Information Administration (EIA) said in a forecast released Wednesday. It fell to 9.2 million by December, and is expected to bottom out at 8.5 million barrels a day in November, the agency said.

Similarly, Genscape Inc. – a U.S.-based research firm – expects U.S. production to fall from its current 9.2 million barrels a day to 8.2 million by the end of the year. Genscape said the biggest declines would occur in South Texas's Eagle Ford field, where production is expected to decline by 15 per cent, and in North Dakota's Bakken region, where it is expected to drop 16 per cent.

Story continues below advertisement

That decline in U.S. oil production won't be enough to rebalance global markets, as analysts had expected to be the case when oil prices began falling sharply after the Organization of Petroleum Exporting Countries failed to rescue the market by curbing production in November, 2014. The EIA expects prices to rebound somewhat this year from the 12-year lows touched this week; it forecasts West Texas intermediate oil will average $38.54 (U.S.) a barrel in 2016 and $47 next year.

Crude markets remained under pressure Wednesday. Prices rose by more than $1 a barrel early in the day on strong import demand from China, but retreated after the U.S. data showed increases in inventories for crude and refined products such as gasoline. By the end of the trading day, Brent crude, the international benchmark, fell by 55 cents to $30.31 a barrel, while West Texas intermediate gave up early gains to close 4 cents higher at $30.48.

The EIA warned Wednesday of further pain in the industry, a gloomy outlook that was echoed by a leading Wall Street analyst. Oppenheimer & Co.'s Fadel Gheit said the industry is headed for a nasty, long-delayed reckoning, with many debt-laden companies facing bankruptcy as depressed prices and falling output saps their revenues.

"The shale oil industry cannot survive on sub-$60 oil," Mr. Gheit said in an interview.

Mr. Gheit said all unconventional oil producers in North America – including those in Canada's oil sands – are losing money at today's prices, though some may be cash-flow positive. He added that, even though Saudi Arabia is running a $100-billion annual deficit, the oil-rich kingdom and OPEC member remains determined to keep production high and prices low to drive high-cost suppliers out of business.

The analyst added that U.S. banks are highly exposed to the collapse in the shale industry, which relied heavily on debt to finance the previous expansion. The banks are now sitting on a mountain of junk bonds that are fast losing value, but they are reluctant to call loans and put companies out of business for fearing of triggering even larger losses.

The number of oil-drilling rigs working in the United States fell to 516 last week, down from 1,421 in early January, 2014. The biggest declines in activity are in the Eagle Ford and Bakken shale fields, while the drilling in the West Texas Permian basin has held up better, partly because it's a more recent play and more companies have to drill to maintain their leases.

Story continues below advertisement

Texas producers face vastly different economics even in the same field, said Ed Longanecker, president of the Texas Independent Producers and Royalty Owners Association in Austin.

"It depends on the shale formation, it depends on their position, their assets, their technology for what the break-even is," Mr. Longanecker said in an interview from Austin. "Some companies can make money at $30 … [but] a lot of our companies are still looking at driving greater efficiencies, putting pressure on service companies, cutting capex [capital expenditures], reducing rig counts and reducing personnel to offset this low-price environment."

Report an error Editorial code of conduct
Tickers mentioned in this story
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

If you do not see your comment posted immediately, it is being reviewed by the moderation team and may appear shortly, generally within an hour.

We aim to have all comments reviewed in a timely manner.

Comments that violate our community guidelines will not be posted.

UPDATED: Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies