Bank of America: US shale industry to suffer if oil prices decline to $50 per barrel

Bank of America (BoA) has warned that the US shale industry is set to suffer from the continued slide in oil prices, and it would be forced to cut production soon.

The bank said in its year-end report that at least 15% of US shale producers are losing money at current prices, and more than half will be under water if US crude falls below $55 (€44.4, £35.1). The high-cost producers in the Permian basin will be the first to "feel the pain" and they would have to cut back on production soon.

The bank added that the Organization of Petroleum Exporting Countries (OPEC) has lost its power to influence prices, and oil rates would slide to $50 a barrel. The situation would lead to wild price swings and disorderly trading, which would benefit only rich states in the Middle East such as Saudi Arabia.

Meanwhile, oil producers with fewer reserves such as Venezuela and Nigeria will struggle to survive in the market.

The OPEC is "effectively dissolved" after its failure to arrest falling oil prices at its last meeting, the Telegraph quoted Francisco Blanch, the bank's commodity chief, as saying.

"The consequences are profound and long-lasting," he noted.

BoA said the current slide would choke off shale projects in Argentina and Mexico, and force retrenchment in Canadian oil sands and some of Russia's remote fields.

BoA's claims come in sharp contrast with its arch-rival Citigroup, which says that the US shale industry is far more resilient to global shocks. The industry has marginal costs for existing rigs nearing $40 a barrel, and much of its output hedged on the futures markets, according to Citigroup.

Crude oil prices have declined around 40% since the beginning of the year, and the commodity is trading at five-year lows. BoA expects a sharp rebound in oil prices in the second half of 2015, and prices could climb to between $80 and $90.