"Shale boom tested as sub-$90 oil threatens U.S. drillers."

Bloomberg: “The U.S. shale boom is producing record amounts of new oil as demand weakens, pushing prices down toward levels that threaten to reduce future drilling.”
“Domestic fields will add an unprecedented 1.1 million barrels a day of output this year and another 963,000 in 2015, raising production to the most since 1970, according to the U.S. Energy Information Administration. The Energy Department’s statistical arm forecasts consumption will shrink 0.2 percent to 18.9 million barrels a day this year, the lowest since 2012.
More supply from hydraulic fracturing and horizontal drilling, and less demand, are contributing to the tumble in West Texas Intermediate crude. The U.S. benchmark is down 24 percent since June 20 and fell below $90 a barrel on Oct. 2 for the first time in 17 months.
“If prices go to $80 or lower, which I think is possible, then we are going to see a reduction in drilling activity,” Ralph Eads, vice chairman and global head of energy investment banking at Jefferies LLC, which advised 38 percent of U.S. energy mergers and acquisitions this year, said in an Oct. 1 interview. “It will be uncharted territory.”
WTI declined to as low as $86.83 a barrel today on the New York Mercantile Exchange, before closing at $87.31, the lowest settlement since April 17,2013. Prices in domestic fields such as North Dakota’s Bakken shale are several dollars lower because transportation bottlenecks raise the cost of reaching refiners.
The EIA cut 2014 and 2015 crude price forecasts yesterday because of rising production and falling consumption. WTI will average $94.58 next year, down from a September projection of $94.67. The outlook for Brent oil, the benchmark for more than half of the world’s crude, was lowered to $101.67 from $103. U.S. output reached 8.7 million barrels a day in September, the most since July 1986, the EIA said. U.S. demand is down because Americans are driving less and using more fuel-efficient cars, according to the EIA.
Shale oil is expensive to extract by historical standards and only viable at high-enough prices, Ed Morse, Citigroup Inc.’s head of global commodities research in New York, said by phone Sept. 23. Oil from shale formations costs $50 to $100 a barrel to produce, compared with $10 to $25 a barrel for conventional supplies from the Middle East and North Africa, the Paris-based International Energy Agency estimates.
….U.S. output is rising as companies are now getting more wells out of each rig and more oil out of each well, said Eads, whose team includes 26 technical experts. In the Permian basin of west Texas, the country’s largest onshore field, there are twice as many rigs but five times as many wells, according to Eads.
Each rig in the Permian added a record 171 barrels of new oil a day in October, up 21 percent from a year ago, EIA data show. In the Texas’ Eagle Ford, each rig is getting 536 new barrels a day, up 20 percent, according to the agency.
….The slowdown is “nothing short of remarkable,” the IEA said in a Sept. 11 report. It attributed the decline to slowing economic growth in China and Europe. Higher U.S. production and Libyan exports are contributing to ample supply, the agency said.
Advances in freeing natural gas from miles-deep shale rocks drove down prices 86 percent in April 2012 from the 2008 high. Prices peaked at $15.78 per million British thermal units in 2005 and dropped to a low in 2012 as shale resources pushed U.S. output to new highs.
….Crude prices might not fall enough to shut in production. About 70 percent of U.S. reserves would remain economic with global prices at $75 a barrel, according to Wood Mackenzie, an industry consultant based in Edinburgh.
OPEC also may prevent further declines because members need high prices to support social spending. Saudi Arabia needs $87.63 a barrel to balance its budget, compared with $66.50 for theUnited Arab Emirates and $92.96 for Iraq, the International Monetary Fund estimates.”