US shale oil growth between 2011 and 2014 was spectacular, causing total US crude oil output to grow by an annual average of 1m barrels a day during those years. But this was when prices were high.
Production growth has slowed this year, with US government data showing consecutive monthly falls in output since May. Sustained lower oil prices were bound to have an impact on shale drillers eventually, even allowing for cost-cutting, more efficient drilling and price hedging.
Furthermore, the readily available capital that has fuelled the shale boom will not be so accessible if prices stay at current levels or fall further. Shale will be down – although not out – and the boom time will be hard to repeat, unless prices sharply rebound over the longer term.
This is unlikely as the Saudis are pumping at high levels, Iraqi output is creeping up, and Iranian barrels will probably return to market next year.
Ole Hansen, head of commodity strategy at Saxo Bank, says No.
US shale producers are struggling, following the renewed price weakness of the past quarter.
A price collapse to $20 a barrel would cause a major consolidation in the US oil industry with many weaker producers falling by the wayside. But while it will change the landscape as we know it today, it will by no means remove US producers permanently.
What characterises shale oil production is its ability to remove and add production capacity, as the price changes, in a cost-effective manner.
The shale industry is like a very agile sprinter, while major oil companies are more like the proverbial tanker: they are heavily invested for the long haul and have difficulty responding quickly and adroitly to price changes.
As we approach the end of this decade, the lack of investment elsewhere will mean that only US shale producers and Opec can prevent a new oil shock. Shale is down, but by no means out.