The coronavirus pandemic has created significant hurdles for the global energy production markets, with reduced oil demand and collapsing prices. However, it appears the US shale industry will be the subject of a larger extent of impairments in the coming while.
According to accounting firm Deloitte, the US shale industry is poised to suffer substantial losses in asset value of upwards of $300 billion by the second half of 2020. Although US shale has been experiencing considerable growth prior to the coronavirus pandemic, the industry has not been able to make enough money in aggregate. As a result, it now faces various bankruptcies, negative cash flows, and significant impairment of invested capital.
Given that shale oil production has higher production costs than conventional oil extraction, the recent disequilibrium in the world market has delivered a fatal blow to the US shale industry. Although the oil market has regained some momentum since the peak of the crash back in April, the sudden and intense volatility exposes the fragility of the shale industry. According to Deloitte’s calculations, nearly 30% of US shale operators are essentially insolvent given that oil prices are currently at a standstill at $38 per barrel. If the price of oil falls below $20 per barrel, then half of America’s shale companies will collapse.
Information for this briefing was found via CNN and RT News. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.