Tortoise and the Hare - U.S. Shale and Canadian Oil Sands Production in a 'Cheap Crude' World

It’s a new world, folks. The Saudis and Russians, who until a few days ago had been trying to prop up crude oil prices through supply management, are now engaged in an all-out war for market share. Crude oil prices are sharply lower. Three weeks ago, West Texas Intermediate was selling for $53/bbl and Western Canadian Select for $37/bbl; yesterday, they were selling for $34/bbl and $22/bbl, respectively. And things may get worse. All this has profound implications for North American production, but the effects on production in U.S. shale plays versus the Canadian oil sands will be very different. Today, we explain how the oil sands provide steady-as-she-goes baseload supply through pricing peaks and valleys while U.S. shale plays serve as a global swing supplier.

The crude-oil market gyrations of the past few days have left the energy industry shell-shocked, and for good reason. It’s been years since we’ve seen anything close to the once-unthinkable confluence of events that has dragged down oil prices. A coronavirus pandemic that is now affecting more than 100 countries, including the U.S. and Canada, and crippling global oil demand. The utter collapse of a fragile-but-effective coalition of OPEC and non-OPEC producers — including Russia — that for more than three years had held crude supply in check to keep prices from tumbling. And then there’s the stock market, whose free fall in recent days has left a long list of North American exploration and production companies (E&Ps) in a financially precarious state.

This got us thinking about the challenges that U.S. shale and Canadian oil sands producers will be facing, particularly if crude oil prices stay low for a long time. The ups and downs of shale plays and the oil sands have been frequent topics in the RBN blogosphere. In our new Dakota series, for example, we’ve been discussing how gathering-system development has been sustaining an oil-production resurgence in the Bakken Shale. On the downside, we discussed slumping activity and production in the SCOOP and STACK plays of Oklahoma in Broke Down Engine. For the oil sands, there’s been more down than up since the crude oil price slump of 2014-16, as we noted in several series such as The Thrill is Gone, although bitumen production keeps rising. And in our series Everybody Wants to Rule the World, we covered the competitive strain that rising non-OPEC production had been putting on OPEC and its supply-management collaborators.

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