The U.S. shale oil industry could be on shaky ground due to turmoil in energy prices brought on partly by the coronavirus pandemic, analysts said Wednesday.
The Institute for Economics and Peace said in a report that the COVID-19 fallout on oil prices — which were also dented by a production dispute between Russia and OPEC — could result in the “collapse” of the U.S. shale industry.
“The sharp fall in oil prices will affect political regimes in the Middle East, especially in Saudi Arabia, Iraq and Iran, which may result in the collapse of the shale oil industry in the U.S., unless oil prices return to their prior levels,” the report states.
Shale oil has been a boon for U.S. producers and a controversy, due to the fracking process it requires. Fracking includes pumping high pressure water and sand underground to break up rock to release trapped shale oil and has been condemned by environmentalists.
U.S. crude prices have risen in recent weeks from below zero levels in April, and Brent crude this week has doubled its price from two months ago.
The market stabilized some in April and May after OPEC and Russia agreed to production cuts. The International Energy Agency said last month it expects global production to decline for 2020 by 8.6 million barrels a day.
“To some, the Russians and Saudis were playing a ‘good cop, bad cop’ routine to drive U.S. shale out of business, with the Saudis playing protector of global prices and the Russians, wounded by U.S. economic sanctions, refusing to play ball,” expert AkuAlip Jorge Guira, of the University of Reading, wrote for UPI in April. “Either way, both have much to gain by knocking out pricier U.S. shale.”
“Some estimate as many as 70 percent of firms will go out of business overall, with some never coming back until oil stabilizes above $50,” Guira added. “U.S. shale is in a sort of death pageant, and will probably remain that way for the foreseeable future.”