Many US shale producers have been teetering on the brink of oblivion over the last month, with at least one major firm filing for Chapter 11 bankruptcy as major US banks begin setting up the infrastructure to allow them to become major operators of oil and gas fields across the country if more companies end up folding.

The tentative Russian and Saudi-led OPEC+ deal on making cuts in oil output to end the global glut and pick prices up off the floor may have allowed the US shale oil industry to “dodge a bullet” and live to fight another day, energy market analysts have told The New York Times.

On Thursday, two dozen major oil producing nations announced a preliminary agreement which would require cross-the-board cuts of about 23 percent of their output for a total of 10 million barrels per day (bpd) over the next two months, followed by eased cuts of 8 million bpd for the remainder of the year and through 2022.

Mexico, whose president has made increasing oil production a key plank of his economic platform, has been the only country to voice opposition to the cuts, indicating that it would agree to turn off the taps on only 100,000 bpd from the 400,000 requested by OPEC+. Mexico’s intransigence has prompted President Trump to intervene, promising to cut 250,000 bpd in US output on Mexico’s behalf. OPEC+, whose members have warned that the deal may be scrapped if Mexico doesn’t join, have yet to report back on whether they would agree to the joint US-Mexican approach.

Survival From the Jaws of Doom

If approved, the OPEC+ deal could give US shale producers some breathing space over the short term, and maybe even save them from disaster in the long term, observers say.

“Hopefully, the American oil industry has avoided a worst-case scenario,” Amy Myers Jaffe, energy expert from the Council on Foreign Relations, a powerful Washington-based think tank, told NYT. “There still will be bankruptcies, but for the time being, the fears that there would be a wholesale destruction of the industry can now be put aside, because the worst of the price war has passed,” she added.

Trent Latshaw, president of Oklahoma and Texas- based oil services company Latshaw Drilling, agreed, telling the paper that while there would some companies that won’t survive the downturn, “the industry in general will survive and come out of this stronger. We will have to make hard decisions, innovate, and we’ll become smarter because of this,” he said.

Lobbying Moscow and Riyadh

The Trump administration has fervently supported efforts by fellow top oil producers Russia and Saudi Arabia to agree on cuts in oil production amid the glut, well aware of the fact that oil and gas employs over 10 million Americans and accounts for about 7 percent of the country’s GDP.

The president’s strategy has reportedly included threatening foreign oil producers with tariffs, and even a backup, tougher option of direct sanctions against Russia to try to force Moscow and Riyadh to come to the negotiating table in the OPEC+ format. Last week, US lawmakers from major oil-producing states reportedly similarly warned Saudi Arabia that America may be forced to rethink its friendly relations with the kingdom over its decision to start a price war with Moscow.

The US has itself not committed to join the OPEC+ cuts, instead making assurances that shale producers would reduce output through market forces over time. According to industry figures, the US’s drop in output could see exports shrinking from over 3 million bpd in 2019 to almost zilch in the coming months, removing a key concern for both Russia and the Saudis amid fears of a US takeover of their traditional markets.

US Energy Department Estimates 2.1% Drop in Oil Production in May, 1% Drop in Natural Gas

Output of oil and natural gas in the United States is expected to decline by 2.1 percent and 1 percent respectively in May compared with production levels this month, according to Energy Information Administration (EIA) estimates released on Monday.

Anticipated oil output in April of 8.709 million barrels per day is forecast to fall to 8.526 million barrels in May, while gas production is forecast to fall from 84.027 million cubic feet/day to 83.158 million cubic feet/day, the EIA said in a press release.

The forecast comes amid ongoing turmoil in global energy markets due to delays in striking a new OPEC deal, as well as a precipitous drop in energy consumption amid travel restrictions imposed in an attempt to halt the novel coronavirus (COVID-19) pandemic.

OPEC+ countries, as well as the United States, Brazil, and Canada reached a new agreement on Sunday to reduce oil production by 9.7 million barrels a day within the OPEC+ group starting from 1 May, and possibly up to 15 million barrels of oil per day with G20 nations taken into account.

The cuts are to be extended through the end of June before being tapered to 7.7 million barrels per day from July to the end of 2020, when they will then be reduced to 5.8 million barrels per day from January 2021 through April 2022.

The group is expected to meet once again on 10 June to determine whether additional measures need to be taken.

US Dow Plunges 328 Points After New OPEC+ Deal Finalized, Fears of Quarterly Earnings Reports

US stocks took a nosedive Monday, with the Dow Jones Industrial Average index falling more than 300 points as analysts anticipate the release of quarterly earnings reports from multiple companies.

At closing, the Dow Jones fell by 328.60 points, as the S&P 500 slid 28.19 points into red territory. The day’s trading saw the Dow experience triple-digit losses as the stock value of construction machinery and equipment company Caterpillar declined by more than 8%. Similarly, the S&P 500 was driven to negative results by both the financial and real estate sectors.

The Nasdaq Composite, meanwhile, gained 38.85 points after undergoing varying losses earlier in the volatile session.

Monday’s figures come after the New York Stock Exchange saw one of its biggest weekly gains ever the week prior, with the Dow rallying 12.7% and the S&P 500 spiking 12.1%. However, it’s worth noting that both indices are down 16.9% and 13.7%, respectively, from record highs posted in February.

Looming Quarterly Reports Spark Concerns

Although concerns regarding the COVID-19 pandemic and its effect on the US economy have already driven stocks drastically down in recent weeks, some financial analysts are beginning to feel a renewed sense of uneasiness as major US banks are due to release their quarterly earnings report. 

“We think markets are probably not prepared for the weakness in the data and, probably, the duration of the weakness in the data,” Sameer Samana, senior global market strategist for the Wells Fargo Investment Institute, told the Wall Street Journal.

This week, investors will be receiving earnings reports from various companies, including major banks JPMorgan Chase, the Goldman Sachs Group and Bank of America. The reports will cover the first three months of 2020, when the COVID-19 virus first began spreading outside of China.

Historic OPEC+ Deal Sees Oil Prices Rise

Monday’s losses also come just one day after news broke that a deal had been finalized between the OPEC+ member countries and Russia, Saudi Arabia and the US. The weekend deal saw West Texas Intermediate crude trade on Monday at $23.18 per barrel, whereas Brent crude traded at $32.18.

Although the newly agreed upon measures will have a significant impact for the remainder of the year and allow prices to improve, it’s unlikely that the deal will help to completely do away with short-term bumps, Ed Morse, the head of commodities at CitiGroup, wrote in a Sunday note viewed by CNBC.

“Unprecedented measures for unprecedented times,” Morse wrote. “It’s simply too late to prevent a super-large inventory build of over one billion barrels between mid-March and late May and to stop prices from falling into single digits.”

The new, revised deal, which came about after Mexico pulled the plug last Thursday on an agreement for oil production cuts of 10 million barrels per day (bpd), now calls for cuts of 9.7 million barrels per day to begin on May 1. 

The cuts are expected to extend through the end of June before being tapered to 7.7 million bpd from July to the end of 2020, when they will then be reduced to 5.8 million bpd from January 2021 through April 2022. The group is expected to meet once again on June 10 to determine whether additional measures need to be taken.