The assumption that U.S. oil production will continue to rise, undeterred by anything other than some sort of severe disruption, gets questioned in a new report by Morningstar, which lists $55/barrel as the key number to keep the shale boom alive.
“If prices stay above $55/barrel, production will continue to grow in sweet spots like the Permian Basin,” according to the August 5 report, written by Morningstar oil and products research director Sandy Fielden. There are other basins that aren’t “sweet spots,” Fielden writes, citing the Oklahoma Cana Woodford play and to some degree North Dakota’s Bakken because of the long distance to export ports. “So if prices drop below $55 for a sustained period, then the current production stall could turn into a bust. As soon as production starts to fall, exports will follow suit.”
West Texas Intermediate on the CME on Monday dropped almost $1/b to settle at $54.69. While prices settled below $55 on August 1 after a big trade war-created selloff, the fact is that WTI prices have not been consistently less than $55 since late June.