The Shale Patch Faces Reality

Not long ago the oil industry looked like it had dodged a bullet. After the worst bust in a generation cut crude prices from $100 a barrel last summer to $43 in March, the oil market rallied. By June, prices were up 40 percent, passing $60 for the first time since December. Oil companies that had cut costs began planning to deploy more rigs and drill more wells. “We didn’t think we’d be quite this good,” Stephen Chazen, chief executive officer of Occidental Petroleum, told analysts in May.

The runup was short-lived. Fears over weak demand from China, along with rising production in the U.S., Saudi Arabia, and Iraq pushed prices back below $50. In July, even as the summer driving season boosted U.S. gasoline demand close to record highs, oil posted its biggest monthly drop since October 2008. “The much feared double-dip is here,” Francisco Blanch, head of global commodity research at Bank of America, wrote in a July 28 report.