For us shale oil producers, the day of reckoning has come. Thanks to efforts to contain the coronavirus, major oil producing countries are reluctant to agree to cut production to raise prices, Saudi Arabia and Russia are willing to take special measures and are flooded with oil, and the industry has been hit by the perfect storm of historically low energy demand. The oil market kept prices down.
After the OPEC meeting in early March, the Russians disagreed with Saudi Arabia's production reduction plan, and the Saudis launched a price war with Russia and its allies. Since then, oil has plummeted. On April 20, WTI, the US benchmark crude oil price, ended a disastrous day at - 37.6 a barrel. This is the lowest WTI oil price since the New York Mercantile Exchange began trading oil futures in 1983.
For most U.S. shale producers, WTI's average oil price must hover between $40 and $45 a barrel due to the relatively high cost of production. In contrast, Saudi Arabia's oil is the world's lowest production cost, with an average price of $8.98 per barrel and Russia's average production cost of $19.21 per barrel. Paying for production costs in such a sluggish global economic environment alone would leave us shale oil producers short of cash for shareholder dividends and basic corporate costs.
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