Inflation drives up drillers’ costs in US shale oil patch

Inflation drives up drillers’ costs in US shale oil patch

The supply bottlenecks and labour shortages felt across the US economy are driving up the cost of shale oil production, a trend that is helping to underpin the price of crude.

Expenses including steel, wages and contracts to hire drilling rigs are on the increase. Cost inflation in the oil patch is likely to run at 10 to 15 per cent next year, much faster than the broader US price indices, forecasts Artem Abramov, head of shale research at Rystad Energy.

This could have consequences for global oil markets. Moody’s, the debt rating agency, recently raised its expected oil price range for the next two years by $5 a barrel, to $50 to $70 a barrel, noting that “production costs started to rise in step with oil demand and a broader economic recovery”.

Oilfield service companies, which carry out tasks such as drilling wells and disposing waste, have warned for months that they will shift the rising cost burden of supplies and wages on to producers.

Jeff Miller, chief executive of Halliburton, the third-largest oilfield service company by revenue, said in July that there had been “inflation in many parts of our business,” adding, “but we’ve been able to pass that along”.

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