Bleak outlook for US shale industry amid global drop in energy demand

DESPITE the best efforts of the Trump administration to persuade Saudi Arabia to cut crude production and prop up global oil prices to a level that ensures the viability of the US shale oil industry, the outlook for shale is uncertain.

The benchmark West Texas Intermediate crude remains within a US$2 range, with support at US$40 and resistance at US$42. Consequently, US shale producers are now expected to post the industry's worst second-quarter results since 2016. Hence America's shale oil boom seems to have peaked without making money for the industry in aggregate. Plagued by more than 190 bankruptcies since 2010, the shale oil industry will not be viable until the oil price recovers to above US$50 a barrel.

But that price level may be a long time coming. The coronavirus pandemic has wreaked economic havoc everywhere. Demand for oil has plunged. In 2019, the world consumed 99.7 million barrels per day (bpd). Oil consumption has now plunged to about 91 million bpd. Members of Opec and Russia agreed to huge output cuts of 9.7 million bpd, the equivalent of 10 per cent of global supplies to prop up the global price in April. It has had only limited success.