The collapse in the global oil prices is expected to reduce the production of shale oil by more than 2 million barrels a day because many of the oil producers in the country have been forced to shut down their fracking rigs, said reports.
The price of oil in the US dropped to a new 18-year low as it went below $18 a barrel on Friday after the US also noted one of the largest increases in the country’s oil stocks on record even as continued drop in demand for oil and with holding and storage facilities reaching their capacity limits. The international benchmark oil price fell to $28 a barrel.
“The market knows that the US crude stocks will fill very rapidly,” said Bjørnar Tonhaugen, the head of oil markets at Rystad Energy. By the end of the month, the crude oil stocks in the US might reach an all time high and that build up can be continued in May, Tonhaugen said.
Compared to the forecasts for the industry before the outbreak of the novel coronavirus pandemic, the US shale industry is expected to decline by 2.1 million barrels a day which is about 2 per cent of global supplies, according to forecasts by Rystad Energy.
Prior to the onset of the novel coronavirus pandemic across the world, industry analysts had predicted growth by 650,000 barrels a day for the current year for the US shale industry production. The pandemic has now wiped off that forecast because of a plunge in global demand for oil that resulted in one of the deepest drops in the global price of oil in history. Analysts have forecast a drop by 1.5 million barrels a day compared to last year and predictions are that the decline will continue to get larger.
Plans to cut down its North American oil production by 225,000 barrels of oil a day and reduce the planned capital expenditure by more than one fourth to $4.3 billion are being made by one of the largest US oil companies, ConocoPhillips.
Plans to reduce in oil production and spending have also been announced by US oil giants ExxonMobil and Chevron because of a significant hit due to the sharp decline in global oil demand to US oil projects. While Chevron plans to reduce its spending by about one fifth, or $4 bn, of what it did last year, a 30 per cent cut in spending, which amounts to $10 bn this year was announced by Exxon.
Earlier this month, shutting down of wells was also being done by many smaller oil producers in the country because of the threat of overwhelming of storage facilities because of excess oil supplies. In some inland areas of the US, negative oil prices have resulted because of the glut of oil as the cost for transportation of the oil to the refineries or ports is more than the price in the market for a barrel.
(Adapted from TheGuardian.com)