Brent crude has recovered from its sub-$30 per barrel low in early January, and is today trading at $41.60 (with WTI trading less than $2 below that). But even this modest recovery could be swatted down by a boost to American supplies if more shale producers start unleashing the so-called “fracklog” of drilled-but-not-yet-completed wells. Reuters reports:
Some U.S. shale oil producers, including Oasis Petroleum and Pioneer Natural Resources Co, are activating drilled but uncompleted wells (DUCs) in a reversal in strategy that threatens to bring more crude to a saturated market and dampen any sustained rebound in prices. […][W]ith crude futures hovering near multi-year lows and many doubting recent modest gains that brought oil prices near $40 a barrel can hold, the backlog of DUCs is already shrinking in some areas. In key shale areas such as Eagle Ford or Wolfcamp and Bone Spring in Texas such backlog has fallen by as much as a third over the past six months, according to data compiled by Alex Beeker, a researcher at Wood Mackenzie.
Oil prices have fallen a long way from their $115 per barrel high back in June of 2014, and along the way they’ve threatened the profitability of many operations, including those in America’s shale formations. But many of those producers have not been sitting by idly, and have invested into refining techniques to turn profits even in today’s bearish markets. Now, with prices edging up, financially pinched firms are keen to cash out.The world’s petrostates have seen their national budgets imperiled by the rise of non-OPEC production, and American shale companies have been some of the biggest contributors to today’s supply glut that’s led to the collapse in prices. The sheer resilience of the plucky U.S. oil industry has been a painful lesson for the oil giants, and the unleashing of the frackog is only likely to twist the knife.