The shale oil and gas boom transformed the USA’s energy market but also played a significant role in the geopolitical theatre. The biggest idiosyncrasy attached to the market is the constant drilling requirement. Unconventional wells have prolific early production but quickly peak. The only way to ensure production grows or is sustained is to keep drilling new wells. The economics of the sector are capital intense so interest rates, availability of funding and the price of the commodity play a significant role in how many wells are dug.

Eoin Treacy's view

The shale oil and gas boom transformed the USA’s energy market but also played a significant role in the geopolitical theatre. The biggest idiosyncrasy attached to the market is the constant drilling requirement. Unconventional wells have prolific early production but quickly peak. The only way to ensure production grows or is sustained is to keep drilling new wells. The economics of the sector are capital intense so interest rates, availability of funding and the price of the commodity play a significant role in how many wells are dug.


The number of drilled but uncompleted wells (DUCs) continues to trend lower and the recovery in the number of newly drilled wells remains modest at best. That suggests a significant decision point is approaching for the shale sector. Drilling will need to accelerate if production is to be sustained.


Higher prices will attract more drilling. That’s when the theory of resource depletion will be put to the test. This is an important potential theme to monitor because if US supply is truly peaking it represents a major tailwind for companies like Royal Dutch Shell and Australia’s LNG exporters.

Royal Dutch Shell continues to range, with environmental concerns weighing on sentiment.

Santos is beginning to demonstrate support in the region of the upper side of the underlying range following the decline sparked by the Oil Search merger announcement.

Natural gas continues to extend its break above $4.

UK natural gas continues to accelerate but is very overextended in the short term and susceptible to some consolidation.

The sector most likely to benefit from a peak in US production would be offshore. Many of the companies focusing on this sector have gone bankrupt. Oil prices higher than $100 will be required to revitalize the sector though.

Meanwhile crude oil pulled back today on speculation Russia is preparing to increase supply. The above charts continue to signal investors are not convinced the US supply situation is in danger of peaking.