Q&A: With rock-bottom prices, will the oil industry recover?

NEW YORK (AP) — With a barrel of crude oil costing less than a New York pizza, many U.S. shale producers are being pushed to the brink of bankruptcy and experts are wondering when, and if, the oil industry will recover.

The price of benchmark U.S. crude oil closed at $12.34 a barrel Tuesday. At the start of the year, the price was around $60.

Demand for oil has been decimated by the coronavirus pandemic, especially as shelter-in-place orders reverberated around the globe. “International travel, certainly by air, has essentially ceased, and that’s shocking,” said Jim Burkhard, vice president, IHS Markit.

The Energy Information Administration expects jet fuel use to fall 34% in the second quarter. In addition, the agency expects gasoline use to drop by 25% from April to June as drivers stay home instead of hitting the road during warmer weather.

Oil prices were declining even before the pandemic hit as producers flooded the market with more oil than the world could use. Now, as demand shrinks, the industry is running out of places to store it. As the downturn wears on, oil producers are dramatically curtailing their plans to drill for new oil and some have announced they're shutting in wells that were already producing, a process that could damage oil fields.

WILL THE U.S. OIL INDUSTRY RECOVER?

No one can predict the future, but sustained low prices are likely to have a lasting impact on the U.S. oil industry. Prices are too low for most oil companies to drill new wells, and the amount of oil that existing wells generate declines over time. When oil companies stop drilling, that leads to long-term production declines.

IHS Markit suggests U.S. oil production could decline by 3 million barrels per day to 10 million by the end of this year, and could decline...