US President Donald Trump's desire to increase domestic oil production and reduce energy prices is fraught with the risk of stopping drilling, said Scott Gruber, an analyst at the world's largest investment bank Citigroup, Bloomberg reports.
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Gruber noted that if the price of West Texas Intermediate (WTI), the U.S. benchmark crude, holds at around $65 a barrel, shale companies will likely shut 25 rigs and lock in U.S. oil production.
He also added that further price declines would lead to an actual reduction in crude oil production.
WTI crude prices are heading into what is likely to be their longest streak of losses in nearly a decade as the Trump-led trade war weighs on demand prospects and traders brace for more Russian crude to enter global markets.
Prices hit a 22-month low of $65.22 earlier this month and have fallen nearly 7% year to date.
“A price drop to around $50 is likely to have a significant psychological impact, which could result in a reduction in the drilling rig count of about 75 units and a reduction in oil production of more than 300,000 barrels per day,” Gruber said.
Harold Hamm and Scott Sheffield, known as the “titans” of the shale industry, this week expressed the view that oil prices in the $50-a-barrel region would create serious difficulties for the sector.
Late last year, Trafigura forecast that US oil production would rise by about 400,000 barrels per day, of which about 100,000 barrels would come from shale oil.
Saad Rahim, chief economist at Trafigura, said that if the current downward price trend continues, there is a possible scenario in which US shale oil production could remain at current levels or even decline.
He said the $60 price was too low for most businesses in the industry to operate effectively.
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