US Shale Producers Wary of Opening New Rigs Despite Oil's Unexpected Rally

US Shale Producers Wary of Opening New Rigs Despite Oil’s Unexpected Rally © Photo:

14:24 01.05.2016(updated 14:32 01.05.2016) Get short URL

Analysts have been surprised by oil’s recent rally, but most US shale oil producers will have to wait for the price of oil to reach $60 a barrel before they can afford to add new supply to the market, The Wall Street Journal reported.

Brent crude was trading at more than $47 per barrel on Friday but US shale producers are still cautious about adding new production to the market after their experiences last spring, when oil prices rallied to $60 a barrel, new rigs were put to work, but prices again fell to new lows.

“There is definitely some caution that they don’t want to jump back in too fast and see the price fall below $40,” Rhidoy Rashid, analyst at London consulting firm Energy Aspects, told The Wall Street Journal.

Many producers “couldn’t deal with that again for another extended period of time.”

Scott Sheffield, chief executive of US shale producer Pioneer Natural Resources Co., told the newspaper that his company will look to add up to 10 rigs if oil prices improve to about $50 a barrel.

However, he also said that few of his US industry peers could do the same unless prices rise to $60 and companies sell assets, raise equity and pay down debt.

Energy company Hess Corporation also told analysts last week that its threshold for adding new rigs is close to $60 a barrel.

On Friday oil-field-services firm Baker Hughes Inc. said that the number of rigs drilling for oil in the US fell by 11 to 332 last week, down 79 percent from a peak in October 2014, the newspaper reported.

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