The US shale industry is expected to shrink by more than 2m barrels a day following a collapse in global oil prices which has forced oil producers to shut down their fracking rigs.
The US oil market slumped to fresh 18-year lows and below $18 a barrel on Friday following one of the biggest hikes in US oil stocks on record as demand for oil continues to fall and storage facilities near their limits. The international benchmark oil price fell to $28 a barrel.
“The market knows that the US crude stocks will fill very rapidly,” said Bjørnar Tonhaugen, the head of oil markets at Rystad Energy. Tonhaugen said US crude oil stocks might reach an all time high by the end of the month and continue to build in May.
Rystad Energy expects the US shale industry to shrink by 2.1m barrels a day, or 2% of global supplies, compared with forecasts for the industry before the coronavirus outbreak.
US shale was expected to grow by 650,000 barrels a day this year before the coronavirus outbreak wiped out forecasts for global oil demand, triggering one of the steepest oil price declines on record. It is now forecast to shrink by 1.5m barrels a day compared to last year and that may accelerate even further.
One of the largest US oil companies, ConocoPhillips, plans to slash its North American oil production by 225,000 barrels of oil a day and cut its planned spending by more than a quarter to $4.3bn.
The US oil giants ExxonMobil and Chevron have also set out plans to rein in oil production and spending as US oil projects take the brunt of a sharp decline in global oil demand. Exxon will cut its planned spending by 30% or $10bn this year, while Chevron will cut its spending by a fifth, or $4bn, compared with last year.
Many smaller oil producers also began shutting their wells earlier this month as excess oil supplies threatened to overwhelm storage facilities. The glut of oil has led to negative oil prices in some inland areas of the US because the cost of transporting oil to refineries or ports is higher than the market price per barrel.
The Guardian reported last month that global oil prices may fall to lows of $10 a barrel as the world runs out of space to store its oil. The global oil industry may increasingly look to offshore oil tankers to store its extra crude oil, but for this to be economic it would require oil prices to fall further.