Macquarie: deflationary trend makes us shale more resilient

Investing.com -- U.S. shale producers are now facing a lower hurdle to production than previously expected, driven by cost savings from capital expenditure and ongoing productivity gains.

"Our early look at 2025 E&P budgets points to a broad deflationary trend in tight oil," Macquarie analysts said in a recent note Tuesday, cutting their forecast on E&P average budget breakeven.

"We see a weighted average budget breakeven of ~$44.50/bbl WTI. This compares to a weighted average of ~$46/bbl WTI on our initial look at 2024," they added.

The lower breakeven budgets for producers in 2025 has largely been driven by "the CapEx (investment) side of the ledger," the analysts said. Industry-wide tight oil productivity gains in the Permian basin have also played a role in lowering breakeven costs

Despite the lower costs, Macquarie still believes that oil in the $50 to $55 WTI range would be needed to halt U.S. onshore oil growth.With WTI currently trading around $70 per barrel, this range may seem extreme, but it can't be completely ruled out.

"While the prospect of $50-55 oil may seem extreme, should various geopolitical hotspots (Russia, Venezuela, Iran) fail to deliver material supply disruptions, 2025 oil balances indeed may need to solve for a price that curtails US growth," the analysts said.

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