Houston: Output from US shale oilfields will keep growing for some time even if crude prices dip further, and people have been too quick to write off companies in shale basins, the head of a company that provides hedging services to US producers has said.

Conventional wisdom among oil analysts is that Saudi Arabia, frustrated by a global supply glut caused by soaring output in the US, is prepared to let prices fall to squeeze US capital-intensive shale oil producers out of the market. But that view is misplaced.

“This is something people have gotten wildly wrong — the cost structure of shale production,” Eric Melvin, chief executive officer of the Mobius Risk Group, told the Reuters Commodities Summit.

“We have a lot of clients in this area, and the cost structure I’ve heard is $70 (Dh257) yor $80 a barrel. Well, that means I might slow some capital expenditures in 2015 and even into 2016, but that’s not going to change production for wells that are funded and drilling or about to be drilled,” he said.

“So you are going to see continued production growth here another $20 to $30 down.”

Benchmark US crude CLc1 has plunged 25 per cent to about $79 a barrel since late June on a strong dollar, surging supply and tepid global demand. Most analysts do not expect prices to recover significantly until the middle of next year, if then.

Historically, some producers have shown little discipline in price dips and have been known to pump oil even when losing money, in part to stay on as owners.

“In any producer structure you have equity guys and debt guys, and the equity guys will try to make sure the debt guys don’t become equity guys,” Melvin said. “So in short order if I need to make my debt payment I’m going to keep producing just to make that payment.”

To be sure, Melvin said some marginal firms may not survive, especially if interest rates rise and oil prices remain low. But those failures would not be enough to greatly dent US supply that has surged to a 25-year high of nearly 9 million barrels per day.

At least one firm, Continental Resources Inc, has boldly exited all of its hedges through 2016, with CEO Harold Hamm saying the price downdraft is temporary and betting prices will soon recover.

In recent years, major banks from Goldman Sachs Group Inc to Morgan Stanley, JPMorgan Chase & Co and Credit Suisse have been limited in their ability to offer hedging to the marketplace as tighter rules by the Federal Reserve and Dodd-Frank legislation forced them to end proprietary trading.

Many former customers of Wall Street banks now get their hedging from oil producers with physical trading arms such as Royal Dutch Shell Plc and BP Plc, or commodity merchants such as Cargill Inc, Trafigura and Vitol.

Hedging offers commodity producers protection from sharp price drops, though it can also limit profits if prices soar. Melvin’s company handles hedging strategy and execution for producers, refiners and power companies, among others. He said some of the regulation has made markets murkier.

“The unintended consequence of, you know, ‘we want transparency’ has also driven capital to markets that are less transparent,” he said.

In the hedging world, bid-ask spreads have widened and costs have risen, though perhaps not as much as initially feared. “Hedge still costs cents per barrel, not dollars per barrel. It’s not prohibitive,” Melvin said.