With oil fetching barely half the price today that it was this past June, some U.S. shale operators are choosing to sit on their supplies, waiting for a price rebound before they start crude flowing again. They’re doing that by drilling wells into shale formations but not yet fracking them, sticking a tap in the ground but choosing not to turn it on. As Bloomberg reports, these operators are creating a large fracking backlog—a “fracklog”:
Drillers in oil and gas fields from Texas to Pennsylvania have yet to turn on the spigots at 4,731 wells they’ve drilled, keeping 322,000 barrels a day underground, a Bloomberg Intelligence analysis shows. That’s almost as much as OPEC member Libya has been pumping this year.The number of wells waiting to be hydraulically fractured, known as the fracklog, has tripled in the past year as companies delay work in order to avoid pumping more oil while prices are low. It’s kept crude off the market with storage tanks the fullest since 1930.
Companies are also putting drilled crude into storage, following the same logic as the frackloggers. They hope to fetch a better price for their product in the coming months. These efforts can temporarily help curtail America’s booming supplies and could cut down on the global glut that’s led to the price crash in recent months, but OPEC’s petrostates shouldn’t be cheering. As soon as prices start to tick upwards, these wells will be fracked and crude put in storage will be sold, and the market will be once again flooded with oil. When that happens, expect prices to tick right back down again.The larger the fracklog grows, the less likely it seems oil prices will return to $100+ per barrel prices anytime soon. Meanwhile, the American shale industry is innovating its way to lower breakeven prices. These producers may find they’re able to profitably sell off some of this fracklogged oil at current prices, and that could send crude even lower. Petrostates, beware.