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Mon Jul 2, 2012, 02:14 PM

Oil is up, but a declining trend could curb shale rush

Although oil prices jumped today after an encouraging European policy decision, a recent trend of declining oil prices could put a damper on rapid shale drilling in the United States, according to analysis from Simmons & Company International.

Oil companies have dramatically ramped up domestic drilling and production over the last two years, inspired to spend heavily on new developments because of the bounty of high oil prices.

But if oil prices resume their recent slides, Bill Herbert, co-head of research for Simmons & Company said the excited spending on expensive shale play developments will likely taper off.

“If it stays where it is today or goes lower, then, drilling activity — I think it’s going to have to adjust lower because I don’t think there’s is going to be the necessary cashflow to sustain it,” Herbert said.

Benchmark domestic crude surged $7.27, or 9.4 percent, to $84.96 a barrel onFriday, after European leaders said they would send bailout money directly to banks instead of through indebted governments.

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