Shale Producers Sink After OPEC Keeps Output Steady
Continental Resources (CLR) and other shale oil exploration and production companies fell hard Friday after OPEC decided Thursday to keep production levels steady.
West Texas Intermediate oil fell nearly 6% to $69.40 a barrel, the lowest since May 2010. Brent futures rose 1% to $73.29.
Despite falling oil prices, OPEC members like Saudi Arabia were hesitant to cut production and lose their market share to U.S. competitors.
"It was a great decision," Saudi Oil Minister Ali al-Naimi said after OPEC's meeting Thursday. Iraq's oil minister, Adel Abdel Mehdi, told Reuters that he saw a floor at $65-$70 per barrel.
"I think they wanted to shift the burden of pricing support to other producers," said Tamar Essner, an energy analyst at Nasdaq Advisory Services. "If they force a slow down in investment to outside sources like the North American market that is more of a correction in terms of supply because it takes supply offline in future years.
Continental shares plunged 16.6% to 42.67 in morning trade on thestock market today. Devon Energy (DVN) fell 8.4% to 58.67. EOG Resources (EOG) fell 7.6% to 86.91.
Shale drilling is more expensive than conventional drilling and needs a higher oil price to stay profitable. Analysts have estimated crude prices of $70-$80 a barrel is necessary to sustain most shale production.
The Oil & Gas-U.S. Exploration & Production group is ranked No. 193 out of the 197 industry groups IBD tracks, down from No. 3 about six months ago.
Essner believes that the bigger producers in the U.S., with stronger balance sheets, will be fine even if oil stays in the high 60s.
"I think we will see a consolidation in the industry depending on how long this lasts. We saw the same thing with natural gas," she said. "But we didn't see the death of the U.S. natural gas industry and this doesn't spell the death of U.S. shale oil at all.
Oil majors took a hit as well.
Exxon Mobil (XOM) shares were down 3.7% to 90.99. Chevron (CVX) fell 5.3% to 109.06. ConocoPhillips (COP) fell 6.2% to 66.42.
Oilfield service firms like Halliburton (HAL) and Schlumberger (SLB) were down too.
OPEC made no indication it would call a special meeting to discuss production levels further, a sign that it had more unity than previously thought in its willingness to wait out lower prices in the short term.
Follow Gillian Rich on Twitter: @IBD_GRich.