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U.S. Shale Oil Producers Won’t Make Money at $50 Per Barrel

Fossil producers in the United States will be in for a rough ride this year if oil prices remain in the range of US$50 per barrel, an analyst told CNBC in an interview last week.

“$50 oil is not a level at which U.S. producers can generate cash flow and production growth, so we do expect a slowdown there,” said Virendra Chauhan of UK-based Energy Aspects. While “I think there are select companies which will survive,” he added, “certainly at $50 per barrel the industry does not generate enough cash flow to be able to entice investors.”

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Chauhan said he did expect a “constructive second half of the year”, suggesting prices will rise to a level fossils find a bit more comfortable. Benchmark West Texas Intermediate (WTI) crude oil was selling for $51.99 per barrel late Tuesday, after hitting a recent low of $42.53 on December 25.

In mid-December, Again Capital Management LLC founding partner John Kilduff warned that prices were entering a range where U.S. shale producers can’t make money, Rigzone reports.

“You’re getting into that zone now,” he told Bloomberg, “particularly when you add in all the costs, not just the pure drilling and extraction methodology. That’s going to start to get tough for them right now,” even though some fossils in Texas’ Permian Basin have been able to break even at $35 to $40 per barrel.