The bear market in oil has analysts reassessing the U.S. shale boom after five years of historic growth.

The U.S. benchmark price dropped to $79.78 a barrel on Oct. 16, the lowest since June 2012. At that level, one-third of U.S. shale oil production would be uneconomic, analysts for New York-based Sanford C. Bernstein & Co. led by Bob Brackett said in a report yesterday. Drillers would add fewer barrels to domestic output than the previous year for the first time since 2010, according to Macquarie Group Ltd., ITG Investment Research and PKVerleger LLC.

Horizontal drilling through shale accounts for as much as 55 percent of U.S. production and just about all the growth, according to Bloomberg Intelligence. The Paris-based International Energy Agency predicted in November that the U.S. would pass Russia and Saudi Arabia to become the biggest producer in the world by 2015. Though some forecasts show oil rebounding or stabilizing, any slower increase in U.S. output would shake perceptions for the global market, said Vikas Dwivedi, an oil and gas economist in Houston for Sydney-based Macquarie.

David Fuller's view

Oil prices slightly above $80 for WTI and $85 for Brent are bullish for the global economy, if not oil exporters who increased their budgets in line with their projections for higher export earnings.  Oil prices are oversold and have steadied, as I also mentioned yesterday in reply to Email of the day 2.

The sharp drop in US WTI and also Brent crude obviously reflect oversupply, but I maintain they are also an attempt by Saudi Arabia to force supply reductions by some of the higher cost producers, from Iran to the USA.  It may curb production from US shale oil producers, but only temporarily, in my opinion, and their production costs continue to decline thanks to technological innovation.

See also: Investors Pile Into Oil Funds at Fastest Pace in 2 Years, from Bloomberg.