Less than 100,000 barrels per day of global oil production has been shut in since oil prices began their downward spiral in 2014, according to a new Wood Mackenzie report. The number represents 0.1% of global oil output — a surprisingly small volume given that the cost to produce 3.4 million barrels per day (3.5% of global supply) at $35 per barrel is less than the revenue received. The price of oil has hovered around $30 per barrel since the year began.
Production from the Canadian oil sands, U.S. “stripper” wells and the North Sea has borne the brunt of production shut-ins. Meanwhile, U.S. tight oil wells are not at immediate risk of being shut in due to lower costs achieved through efficiency gains. Tight oil producers are adding new volumes more slowly, however, as oil prices remain below the $40-60 range needed for long-term economic viability. Tight oil becomes cash negative when prices dip below $30 per barrel.
Wood Mackenzie’s researchers believe operators will be reluctant to give up on wells that lose only a few hundred dollars per month — margins have grown in recent years due to lower costs and a tightening of the spread between West Texas Intermediate and Brent crude. Moreover, any shut-ins in the U.S. will be short lived given the capital commitment needed to abandon a large amount of wells.
