Supply and Demand

According to a survey by the Federal Reserve Bank of Dallas, the cost of profitably drilling a shale oil well in the US has fallen to a modern low of $50 per barrel, likely ensuring the growth of the onshore shale industry for years to come. The decrease reflects many factors including softer demand from refineries and concerns about the US-China trade war’s impact on global economic demand. The US oil benchmark is currently hovering near $63 per barrel. Cost reductions and increasing production should stop crude oil prices from rising to high.

 

U.S. Energy Information Administration (EIA) reported that crude oil inventories are at a two-year high in the U.S. and that American crude oil production rose to 12.2 million barrels per day (bpd). This surplus means less motivation to drill and less work in the short term, whereas shale production continues to grow in the United States causing the offshore (more expensive) oil to drop.

Although the oil market stabilized today, many supply risks remain. According to Rystad Energy, the US shale revolution means domestic oil production is forecasted to rise 16%, around 1.1 million bpd to 1.2 million bpd. US-China trade tension is a key concern, as of May 10th, when the Donald Trump Administration started lifting tariffs on $200 billion worth of Chinese goods from 10% to 25%. China announced a retaliatory move — a tariff hike on $60 billion of American goods to 25% beginning June 1st. The firmer prices could not make up for the fall earlier in the week. With the unpredictable market and continuing rift between US and China, offshore supply will continue to be affected.

 

https://markets.businessinsider.com/news/stocks/oil-falls-china-trade-war-demand-make-recipe-for-disaster-2019-5-1028228456

https://finance.yahoo.com/news/oil-likely-see-steepest-weekly-120012515.html

https://www.chron.com/business/energy/article/Dallas-Fed-Shale-gains-bring-U-S-oil-breakeven-13866348.php

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