Oil price war in the time of Covid-19

Trump tiptoeing toward energy market management

For the US, the oil market bust could mean that over half of its shale industry, which has been charioting the country’s newfound oil superpower status, may go bankrupt. Breakeven price for US shale industry ranges from $40-50 per barrel — and prices have plummeted to around $20.

A similar crisis had arisen in 2014-2016 period but shale industry survived through a combination of pushing costs lower and retrenching — and bouncing back with higher profits once the crisis was over. However, this time around, shale drillers were already facing substantial hurdles with cash flow problems and maturing debt and the dramatic fall in income simply drives them bankrupt. Again, whereas the problem earlier was one of fall in oil prices, today it is also combining with the biggest demand slump in the history of oil.

The US shale sector is getting completely killed and tens of billions of dollars in equity could get wiped out. 13 US senators wrote to the Saudi Crown Prince Mohamed bin Salman earlier this month urging halt to efforts to boost production and lower prices. They threatened to take action against Saudi Arabia if the “economic warfare” continued.