Is The Shale Oil Market Recovering?
Oil prices have taken a beating over the past year, as a global supply glut and no signs of increasing demand have weighed on the entire industry.
U.S. shale oil producers were feeling the squeeze, as their margins declined significantly alongside the price of crude. However, it appears that the shale market is on the mend, leading many to question how long this rally can last.
Drilling Picks Up
Last week, surveys showed that the number of oil drilling rigs in the Permian shale basin rose for the first time in 2016.
Producers had been cutting down on drilling, as oil prices made their operations too expensive to sustain; however, recent gains in crude prices may have encouraged a ramp up in production.
Shale Producers Rework Operations
Shale oil companies reported dismal earnings for the first quarter, as crude prices caused most to suffer massive losses on their bottom lines.
However, earnings reports from major producers like EOG Resources Inc (NYSE: EOG), Anadarko Petroleum Corporation (NYSE: APC) and Concho Resources Inc (NYSE: CXO) outlined aggressive cost cuts that they say will put them on track for profitability once the market recovers. Many forecast their operations returning to growth by 2016.
Proceed With Caution
While shares of shale producers may seem like an attractive option for contrarian investors, many analysts say it will be necessary to proceed with caution, as the oil market remains volatile.
The US Energy Information Administration has predicted that U.S. shale producers will fall 71,000 barrels per day in June to just 4.97 million bpd. Some believe that the recent revival in the shale market is only setting the industry up for an even sharper fall later in the year.
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