Shale drillers on Thursday paid the price for pouring more and more oil onto global markets.

Shares of U.S.-based oil and natural gas producers were crushed, despite a spate of unexpectedly positive first-quarter profit and production reports. The culprit: crude prices that tumbled from London to New York as traders abandoned faith in an OPEC-led effort to use supply cuts to counteract a persistent shale-fed glut.

Pioneer Natural Resources Co. saw as much as $1.44 billion in market value wiped out on Thursday. California Resources Corp., the Los Angeles-based explorer spun off by Occidental Petroleum Corp. in 2014, fell as much as 11 percent. Chesapeake Energy Corp. lost as much as 9.8 percent of its value.

Other big losers included Whiting Petroleum Corp., which fell as much as 7.9 percent; Occidental, which dropped 4.9 percent; and Carrizo Oil & Gas Inc., which declined 5.9 percent.

Like Chesapeake, Occidental otherwise would have been expected to be rewarded by investors after disclosing a first-quarter per-share result that was more than twice the average of analysts’ estimates. The S&P Oil & Gas Exploration and Production Index of 62 companies fell as much as 4.9 percent to a nine-month low.

WTI Crash

The drillers’ most-valuable product was working against them. West Texas Intermediate, the benchmark U.S. crude, fell more than 4 percent, dipping below $46 a barrel for the first time since Nov. 30. Brent, the London-traded contract against which most of the world’s crude is priced, closed below $50 for the first time since Nov. 29.

Billionaire wildcatter Harold Hamm’s dire prediction of a potential self-inflicted disaster may be coming true. Two months ago, the Bakken shale pioneer and founder of Continental Resources Inc. urged colleagues to take a “measured” approach to lifting production, or risk a new glut.

U.S. production "could go pretty high," Hamm said in March at the CERAWeek by IHS Markit conference in Houston, one of the largest gatherings of oil executives in the world. "But it’s going to have to be done in a measured way, or else we kill the market."

U.S. crude output is at its highest since August 2015 as shale explorers intensify drilling. In response, the Organization of Petroleum Exporting Countries is likely to extend the 1.2 million barrel-a-day cut agreed to in November for six months, according to Nigerian Oil Minister Emmanuel Ibe Kachikwu. The cartel will gather on May 25 in Vienna to make a decision. Russia is said to support prolonging the curbs, according to a government official.

U.S. crude output rose by 28,000 barrels a day last week for the longest run of gains since 2012, according to Energy Information Administration data. Crude stockpiles fell by 930,000 barrels, less than one-third of the median estimate for a 3 million-barrel drop in a Bloomberg survey.

Source:
courtesy of BLOOMBERG

by Joe Carroll

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