Half of US shale drillers may go bankrupt

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Before the crude market reaches equilibrium Half of U.S. shale oil producers could go bankrupt. The senior oil and gas analyst at Oppenheimer & Co., Fadel Gheit, said this Monday that it could be more than two years before crude prices ultimately will stabilize, and its price will oscillate near $60.

Many secondary U.S. drillers must drill into and break up shale rock to get the oil and gas released through a process called hydraulic fracturing. It is a well-stimulation technique in which rock is fractured by a pressurized liquid. The process involves the high-pressure injection of ‘fracking fluid’  into a wellbore to create cracks in the deep-rock formations through which natural gas, petroleum, and brine will flow more freely. It causes that fracking is significantly more expensive than extracting oil from conventional wells. This drillers cannot wait for prices to stabilize so long, also they need at least $70 oil to survive. At current oil prices, companies both large and small – including ExxonMobil and Chevron — will have to think twice about their dividend.

On Tuesday, U.S. crude fell to $29.93, which was last seen in December 2003. Such a drop would be brief because supply and demand are beginning to come into balance. But a number of producers would enter bankruptcy even with crude near $30 per barrel. U.S. drillers are now spending more than they are making from operations, a situation that Gheit said is unsustainable and will eventually force prices higher.

Summing up, the oil industry needs a minimum amount of investment to keep oil supply in line with demand. The current investment right now would not be sufficient enough to bring additional production to meet global demand. It’s not a good information that crude price fell, but we have to remember that this industry is very unstable, so let’s hope it get better within upcoming days.

sources: www.cnbc.comen.wikipedia.org

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