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US shale driller confidence will lag oil price rally

Friday, May 20, 2016

Significance

Prices have risen 84% from their February lows, raising questions about when US oil producers might return to output growth. The issue is key for oil markets, which are watching US production closely, as it is the price-driven fall of shale output that has helped rebalance partially global supply and demand.

Impacts

  • Oilfield service companies will struggle further, as drilling activity remains low.
  • The higher production costs of Alaska and North Dakota will delay the benefits of a sustained price rally in those states.
  • Equity investors in exploration and production companies betting on a return to growth with higher prices could be left disappointed.

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