More downward pressure on oil prices In the wake of one of history’s largest oil price declines in a single day, a Rystad Energy impact analysis shows that US drilled but uncompleted wells (DUCs) will be the first assets to be threatened by the newly formed low price environment, as their breakeven costs are now only dollars away from market prices.
Around 80% of shale DUCs currently have break-even oil prices below $25 West Texas Intermediate ($30 Brent), Rystad Energy’s data show.
“If nobody blinks in this supply war, prices may have to go this low in order to properly reduce production and get supply-demand back in balance,” says Artem Abramov, Rystad Energy’s Head of Shale Research.
“This could turn out to be one of the greatest shocks ever faced by the oil industry, as coronavirus containment measures will add to the headache of producers fighting for market share. And OPEC has clearly stated that it won’t be coming to the rescue in the second quarter of 2020,” adds Abramov.
The only hope on the immediate horizon is for OPEC countries and Russia to capitulate and tighten the supply valves at their next meeting in June.