Oil needs to recover to $65 a barrel for U.S. drillers to tap a pent-up supply locked in shale wells and unleash more crude on markets than is produced by Libya.

Dipping into this “fracklog” would add an extra 500,000 barrels a day of oil into the market by the end of next year, Bloomberg Intelligence said in an analysis on Thursday. Producers in oil and gas fields from Texas to Pennsylvania have 4,731 idled wells at their disposal.

Prices are rebounding from a six-year low after drillers idled half the nation’s oil rigs, slowing the shale boom that boosted production to the highest in four decades. The number of wells waiting to be hydraulically fractured, known as the fracklog, has ballooned as companies wait for costs to drop. That could slow the recovery as firms quickly finish wells at the first sign of higher prices.

“Once service costs come down and drillers begin to work through their higher-than-normal backlog, the market should start to price in that supply coming online,” Andrew Cosgrove, an energy analyst for Bloomberg Intelligence in Princeton, New Jersey, said by phone. “It may act as a cap on prices.”

U.S. oil futures tumbled by more than $50 a barrel in the second half of last year amid a worldwide glut of crude. West Texas Intermediate for June delivery fell $1.16 to $56.58 a barrel at 11 a.m. on the New York Mercantile Exchange.

Oil production in the lower 48 states would rise to 7.67 million barrels a day in the fourth quarter of 2016 if drillers start shrinking their fracklogs by 125 wells a month in October and put some rigs back to work, Bloomberg Intelligence models show. The U.S. fracklog has more than tripled in the past year, with oil wells making up more than 80 percent of the total.

David Fuller's view

‘Service costs’ are at least partially a euphemism for oil workers, who were very highly paid at the height of the fracking boom in early 2014, and have subsequently been laid off by the industry since the price for crude oil plunged.  Oil sector employment will pick up, albeit at lower salaries, when WTI crude is in the high $60s.  Above that region employment and fracking production will accelerate until it caps prices once again. 

Interestingly, the frackers ‘best friend’ is the smouldering religious war between Sunnis and Shiites, which has now expanded across the entire Middle East and a chunk of North Africa.  Little more than barely beneath the surface, this ancient and largely nonsensical dispute to non-Muslims, is being aggravated by considerably lower oil revenues for producer states in the region.  Fewer benefits and bribes are leading to increasing unrest.  Consequently, when military flare-ups threaten let alone damage oil production, crude prices will rise, inviting frackers to increase production until the price of oil slumps once again.   More than ever, oil production will remain a cyclical industry.