Any meaningful reduction in shale production will take at least half a year to materialize. Companies have guidance figures, booked drilling contracts, hedges, as well as management bonuses to prioritize over short term profitability. Oversupply is a matter of going concern until either demand adjusts significantly higher on the back of much higher refining margins (which long predicted this crude oil downswing as I had kept highlighting), or supply adjusta much lower on the back of much lower prices. Prices need to be materially low enough and for an extended enough period to properly curtail drilling activity and affect production. People routinely overestimate US shale's ability or willingness to cut production — indeed, US shale production has consistently beaten predictions of peak and decline until now. This year the broken clocks may well turn out to be right, but unless a major crash happens expect that to look more like a gradual plateau rather than a precipitous decline.
Excellent analysis, thank you
Any meaningful reduction in shale production will take at least half a year to materialize. Companies have guidance figures, booked drilling contracts, hedges, as well as management bonuses to prioritize over short term profitability. Oversupply is a matter of going concern until either demand adjusts significantly higher on the back of much higher refining margins (which long predicted this crude oil downswing as I had kept highlighting), or supply adjusta much lower on the back of much lower prices. Prices need to be materially low enough and for an extended enough period to properly curtail drilling activity and affect production. People routinely overestimate US shale's ability or willingness to cut production — indeed, US shale production has consistently beaten predictions of peak and decline until now. This year the broken clocks may well turn out to be right, but unless a major crash happens expect that to look more like a gradual plateau rather than a precipitous decline.