Cheap Oil Prices Render US Shale Drilling Unprofitable

WASHINGTON (Sputnik) — The drop in global oil prices has slowed shale production in the United States, according to a report issued by the Organization of the Petroleum Exporting Countries (OPEC) on Monday.

"The US shale plays are the highest cost plays to produce around the world," University of Houston Visiting Economics Professor Ed Hirs told Sputnik. "Many of these are noneconomic to drill at the current oil price."

Rapid production declines from current shale wells, Hirs argued, combined with the lower level of new shale drilling, guarantees US shale oil production will continue to decline at current market prices.

University of Detroit Mercy Assistant Economics Professor Bruce Brorby told Sputnik that output will remain low until prices rise high enough to cover production costs.

"This reduction in total output is likely to continue until the price of oil rises again," Brorby explained. "I believe that shale producers require a price in the $60-$65 a barrel range in order to make it worthwhile to continue producing."

Kansas University Assistant Economics Professor Tsvetan Tsvetanov told Sputnik that a reduction in shale oil output comes as no surprise in light of the prolonged decline in oil prices.

"In its current state, the shale industry cannot function profitably or cover its production costs at such low output prices," Tsvetanov added.

The drop in oil prices over the past year has put pressure on US shale producers, many of which loaded up on debt to drill wells and expand production before the price collapse. Some companies were able to hedge against the loss with futures contracts, but the sustained oil bear market is beginning to take its toll on the sector.

Market oversupply has led to global oil prices losing nearly two-thirds of their value since mid-2014, with Brent crude averaging $48.72 per barrel and WTI $44.59 per barrel as of mid-Monday.