$30 Oil Is a Whopping $20 Below Cost of Production for US Shale

The average fracking operation needs $50 oil to break even

Crude futures opened down a massive 31% today. Prices have recovered a bit, but price is well below cost of production.

Saudi Arabia and Russia started an Oil Price War on Saturday.

The carnage was far worse than expected. Oil futures opened near $30, down a record-breaking 27%.

Crude 15-Minute Chart:

That’s the biggest crash in history.

The S&P 500 and Nasdaq futures are down over 4%. Halt limits just hit.

US Cost of Production

A Dallas Fed May 2019 report highlights the Average Cost of Production.

The average breakeven price of oil has fallen 4 percent (or $2 per barrel) over the past year, to $50 per barrel, according to the latest Dallas Fed Energy Survey. The $50 top-line figure masks some important differences. Areas such as the Midland and Delaware basins in the Permian Basin, hotbeds of shale activity, are routinely lower on average than other locations. There is also variability among operators; within the Permian Basin, for example, inpidual responses to the most recent survey ranged from $23 to $70.

Bloomberg New Energy Finance’s breakeven prices in the Permian range from $46 per barrel in Loving County to $87 per barrel in Reagan County.

While market participants may differ on how much oil is available at a given price, they are all aware of the overall trends. These represent strong forces that should keep long-dated futures prices from rising too high or falling too low.

Given current market prices, U.S. shale production will continue growing this year. Indeed, a recent report by the International Energy Agency highlighted that shale production is likely to be a major driver over the next five years.

TIME TO REEVALUATE

Drillers and frackers that borrowed heavily and are dependent on higher prices to pay interest are now in serious trouble.

Oil exports? Uh… forget about them.

Demand is crashing with people working at home and refusing to fly.

A lot of leveraged drillers and crude suppliers dependent on prices above $50 will see a credit implosion.

That’s just a start.

DEFLATIONARY OUTCOME

As noted previously, a Very Deflationary Outcome Has Begun.

Blame the Fed.

Deflation is not really about prices. It’s about the value of debt on the books of banks that cannot be paid back by zombie corporations and inpiduals.

See the previous link for discussion.

LIQUIDITY CRISIS IN ENERGY SPACE

What better time than now to blow up US oil producers heavily in debt as an act of revenge?

The liquidity crisis will quickly spread far beyond energy.

Source: Mish Talk

8 Comments
  1. JustPassingThrough says

    actually it is a charitable act to put these knuckle draggers out of business.
    maybe the earth can recover from the toxics.

    maybe people can start drinking the water again.
    there has never been, in all of history, such a disgusting agglomeration of humans (term used lightly) as the ones that call themselves americans.

    1. Séamus Ó Néill says

      It is indeed stomach churning that these psychopathic amoral beings can even be called human. The ordinary 5/8 in America cannot absolve themselves from the worldwide genocide, the satanic slaughter of millions upon millions of innocent human beings, the reduction of whole sovereign countries to stone age tribes struggling for survival….. carried out in their name and with their taxes and their passive agreement by their government. No, they’re as guilty as their war criminal politicians and payback is coming…and the world will breathe a sigh of relief when they’re gone !

      1. XRGRSF says

        Well said !

  2. Jihadi Colin says

    What was that the blood soaked war criminal Barack Hussein Obama gibbered about in 2015? Something about “reduc(ing) Russia’s economy to tatters”, wasn’t it?

  3. cechas vodobenikov says

    break even for Russian oil is reported at 20 USD per barrel—-the empire will crumble sooner—not later

  4. David Chu says

    Hahahahahahaha!!! Things ain’t going exactly as planned by the Masters of the Universe in the great United States! If these Yankees had one brain cell left, they would follow the path of the Russians and drill, baby drill, from 3-4 km down. Mother Earth produces all the oil and natural gas in the earth at such depths and beyond. Abiotic Oil. It’s the real deal and why Russia went from zero to numero uno (oil and natural gas) in about 50 years.

    1. XRGRSF says

      The major producers in the U$ are planning on pushing holes to 50K feet in the Permian Basin in Texas. I’m retired from XOM, but I have a close friend working the Permian, and he specializes in deep hole production. Deep hole; as in 15K to 50K ft. and the costs are far less than shale production. They figure the field has a remaining life of over 50 years. Look at a geo. map of TX, and you’ll notice that the Permian Basin looks like where they’d stick the nozzle.

      1. David Chu says

        Well, it’s about time! My last job in the good old USA was in Houston, TX and working on the biggest natural gas pipeline in the US back then. This was just before the “shale oil” discovery. And I left just as they tried it in the Gulf of Mexico and that big spill: drilling this deep should not be done in waters!!! Anyhow, it’s good to hear that the Yankees are following the Russians. It’s never too late until those nukes start falling . . .

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