NOURNEWS- US shale drilling companies even planned to cut their capital spending by 10 to 15 percent in 2020, even before the Coronavirus virus spread. The Federal Reserve Bank of Dallas said in a report that many oil exploration and production companies are unable to make a profit due to their heavy debt and the saturation of supply in the oil market, and investors are very pessimistic about this sector.
However, the drilling process has stalled from slow growth and the number of drilling rigs has dropped by more than half. This sector may spend 40 percent less this year than in 2019, and the worst contraction will occur in the second quarter.
According to the Federal Reserve Bank of Dallas, although growth in US oil production has already fallen short of last year's peak, the slowdown in drilling shows that US production will not return to its former peak in a few years.
Analysts at Commerce Bank wrote in a note on Friday that if the OPEC Plus adheres to its production reduction agreement, the oil market will suffer an average shortfall of 5.5 million barrels per day in the second half of the year.
Most importantly, oil prices are expected to remain below $ 50 a barrel by at least next year. The US shale oil industry has never been profitable, even when prices are much higher. There's not much reason to think that the US energy industry will be an economic engine for a long time with West Texas Intermediate remaining below $ 50.
"We probably shouldn't expect energy from a number one industry for a long time," Peter Rodriguez of Rice University told the Texas Tribune in a recent interview.
According to the Federal Reserve Bank of Dallas, the oil and gas industry spent about $ 1.2 trillion to drill wells between 2010 and 2019. But industry and Wall Street will no longer pay that much soon, and investors are pessimistic about oil and gas, and the fall in stock prices for shale oil companies in 2019 is proof of that.
Contrary to the recession between 2014 till 2016, it will be more difficult for shale oil drilling companies to persuade large investors and banks to receive another wave of financing. As a result, improving drilling to pre-crisis levels is out of the question.
According to an early report by Price, the economic consequences of declining investment in the energy sector have been enormous. In the week leading up to May 7, Texas saw a demand for unemployment insurance from 3,2800 drilling workers, mostly from the oil and gas sector. In other words, out of every 1,000 people who apply for unemployment benefits in Texas, 137 are from the oil and gas sector. Over the past week, Texas has adjusted 1,000 more jobs in the oil and gas sector. Lower costs will mean a 6.1 percent drop in total US fixed investment in the second quarter.
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