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Only 1.6% of world's oil production at risk at US$40: WoodMackenzie
[LONDON] Only 1.6 per cent of global oil supplies would be loss-making if crude prices fall to US$40 a barrel, but even this level would not necessarily spark shutdowns, analysts at Wood Mackenzie said on Friday.
Benchmark Brent crude oil prices have more than halved over the past six months to US$50 a barrel due to a growing supply glut.
At US$40 a barrel, around 1.5 million barrels per day (bpd) are cash-negative, located mostly in oil sands projects in Canada, WoodMackenzie said after analysing 2,222 oil fields which account for the majority of global production.
"Being cash negative simply means that the production is more costly than the price received. This does not necessarily mean that production will be halted," Robert Plummer, Corporate Research Analyst for Wood Mackenzie, said.
The first response is usually to store oil produced in the hope that the oil can be sold when the price recovers, while the decision to halt production is complex and often costly.
"There is no guarantee these volumes would be shut-in. Operators may prefer to continue producing oil at a loss rather than stop production - especially for large projects such as oil sands and mature fields in the North Sea."
US shale oil production starts to become cash-negative once Brent prices fall into the high US$30s a barrel, WoodMackenzie said.