Research - MARCH 11, 2015

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Oil patch exuberance wanes

by Drew Campbell

The U.S. shale energy revolution is a little less glamorous now that oil prices have plummeted to $50 per barrel from $100 per barrel, and ratings agency Standard & Poor’s believes the road back to price recovery will be not be quick.

“It’s clear a new dynamic in oil production has emerged,” notes Thomas Watters, writing in S&P’s report Irrational Exuberance in the Oil Patch Declines. “We also posit that a new subtle dynamic in oil prices has emerged, as well — one that will be inherently more volatile due to shale producers’ relative ease in responding to the inherent ups and downs in the oil price cycle.”

With so many U.S. shale producers, S&P explains production is highly undisciplined, and these producers could over- or undershoot the supply/demand balance.

The ratings agency has taken 90 ratings actions in the energy space globally since November 2014, and 81 percent of th

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