OREANDA-NEWS. October 29, 2015. Aside from a brief blip, oil prices have remained stubbornly below \\$50/b in recent weeks despite fresh concern over global demand and rising geopolitical tensions. On the supply side, the market’s gaze has gravitated to that most closely watched of oil market variables — the response of US shale output to weaker oil prices.

Optimism over the “resilience” of US shale due to falling costs and rising well efficiency earlier this year gave way to scare stories in August as shale producers faced losing credit lines under scheduled October loan reviews.

But warnings that great swaths of debt-laden US shale producers could fall off a cliff due to liquidity constraints have proved largely overdone.

Calling such concern over the impact of lower prices on access to funding “exaggerated,” Wood Mackenzie recently said it was upbeat that US independent E&P companies will emerge largely unscathed from the current round of reserves-based-lending reviews by their creditors.

Contrary to fears of the sector’s “implosion” from debt, the research group said at least two-thirds of Lower 48 production being pumped by producers had either no exposure to RBL at all or have no redeterminations until next year.

As a result, just 30,000-40,000 b/d of production — the amount of base decline associated with those operators lacking sufficient liquidity — could be at risk from redeterminations, it said.

Shale’s tale: How technology changed world oil markets. Watch the Platts video on the battle for market share between US producers and OPEC and who could emerge as economic winners and losers.

That assessment does little to change the facts on the ground that US light, tight oil output is in retreat on the back of  a sharp drop in spending and correspondingly lower drilling rates.

Next month, US shale output declines are expected to accelerate to their highest since levels began dropping in April, according to the US Energy Information Administration.

Until now the impact of sliding shale output has been offset by growing deepwater flows from the Gulf of Mexico, but this is set to change soon. Total US oil and liquids production is widely expected to stall this month and begin to decline from early next year.

According to Mark Papa, the former head of US shale oil pioneer EOG Resources, this is just the beginning of the downturn in North America. Speaking at the annual Oil and Money conference in London earlier this month,  Papa predicted “a pretty dramatic decline in US production growth.”

Papa is forecasting falling US oil production from early next year with an annual fall in 2016 averaging 700,000 b/d on the year.

Also speaking in London, EIA administrator Adam Sieminski said that while the US oil industry had reacted to lower prices by improving its productivity, this process could not continue forever.

“Now we are seeing the limits, at least in the near term, and it is beginning to impact production,” Sieminski said.

Indeed, the EIA predicts that productivity per rig will be flat in November at a rig-weighted average of 465 b/d.

Storm clouds also linger in the form of hedging implications for the US’ highly-leveraged independents and may also prove to be more of a cash flow squeeze in the short term. As production hedges are renewed over the coming weeks on a lower forward price for 2016, cash flow from hedging for the top 26 independents will dive from \\$9.1 billion in 2015 to just \\$2.2 billion in 2016, according to Wood Mac.

Interestingly, some market watchers are already looking beyond the short term fate of US shale to focus on the pace of a recovery when prices do strengthen. BP’s chief economist recently noted that — as the majority of shale oil lies in the middle of the cost curve — the short-run development characteristics of shale should actually dampen oil price volatility.

Unlike conventional projects such as deepwater, the billions of barrels of unconventional oil lying in the ground are accessible physically and economically at prices above \\$50/b, some point out.

Indeed, Sieminski  believes that in the near future there is ample supply of shale for sustained US production growth of some 500,000 b/d if oil prices recover to \\$75/b.

The only hurdle, then, is the continued exposure of US shale producers to the financial system and whether creditors will be willing to continue bank-rolling the drilling. So far, at least, that’s a potential risk that has yet to materialize.