OPEC crude output cuts should boost U.S. shale profits in 2021

OPEC and allied countries' decision to cut crude production through March delivered a late Christmas present for U.S. shale firms that have slashed costs, but any rise in prices spurred by the unexpected move maybe just a modest stocking stuffer, Report informs citing Reuters.

U.S. crude oil production has fallen 2 million barrels per day in the last year as low prices and demand forced shale producers to cut their losses. Investors had already been pressuring the industry to curb spending and boost returns before the pandemic hit. Shale output was quickly cut but might return quickly if prices keep rising.

On Tuesday, Saudi Arabia, the world’s biggest oil exporter, said it would voluntarily reduce its production by 1 million barrels per day (bpd) in February and March after Russia pushed to increase output, worried about U.S. shale capitalizing on the group’s cuts.

Russia and Kazakhstan will increase their output, reluctant to cede market share to the United States. Overall, OPEC+ had been due to restore 500,000 bpd in each of the two months. Saudi officials were concerned new increases would outpace demand during new coronavirus lockdowns.

Prices for West Texas Intermediate on Friday topped $52 per barrel, and the 12-month futures’ price, which producers use to plan spending on new wells, hit $51.37 a barrel, up from $44.63 at the start of December.

Higher crude prices will fall directly to U.S. producers’ bottom lines given recent cost cuts and commitments to keeping output flat. Companies pledged to keep production flat and use any price increases to boost investor returns or pay down debt.

Rising prices in recent years have “tended to be a bit of a mirage,” said Thomas Jorden, chief executive of Cimarex Energy. “We’re going to be highly disciplined in setting a budget,” he added at a Goldman Sachs conference on Thursday.

In the top two U.S. shale fields, oil and gas companies are profitable in the $30 per barrel to low $40s per barrel range, according to data firm Rystad Energy. This year’s higher prices could push the shale group’s cash from operations up by 32%, Rystad said.

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