Oil Prices Are in Freefall Once Again
In August, oil prices fell below $40 per barrel for
the first time since 2009. U.S. oil production
hasn’t been this high since the 1970s, Iran’s
supply is likely coming online, OPEC is raising
production as prices fall, and China’s demand
growth is slowing for the first time in decades.
U.S. Shale may be cheaper than we thought
• Analysts once thought that oil would have
to remain above $70 per barrel to keep
shale drillers solvent.
• Pioneer Natural Resources, for example,
says new technology and improved
efficiency have led to a 20% decline in
drilling costs and a 30% reduction is
predicted next year.
• Now some wells may even be
economical, as low as $40 per barrel.
• There’s no sign the U.S. oil industry is
slowing down yet.
OPEC Can’t Give In
OPEC will lose an estimated $257 billion in 2015
because of low oil prices and it makes short-term
economic sense to cut production now.
The problem is that OPEC has been giving up market
share for decades in the name of higher oil prices.
Giving up on the war against high-cost production
now could eliminate any progress they’ve made
taking back market share.
Can OPEC Kill the Oil Boom?
The question is: Can OPEC succeed at slowing the U.S.
shale, ultra-deepwater drilling, and arctic drilling,
even if it wanted to?
Unless U.S. shale producers start to go bankrupt and
big oil cuts development budgets even further than
they have, there’s not a lot of hope OPEC can gain
much market share in oil today.
Demand is a Problem Too
Oversupply is a problem.
But demand for oil might be, too...
China Is a Big Problem for Oil Markets
U.S. and E.U. oil consumption is on a decade-long decline.
The market is relying on China to keep increasing demand.
Fear of a recession in China could mean low oil prices for a long time.
U.S. Consumers to the Rescue?
After declining for nearly a decade, U.S. oil consumption has
risen 3.8% in the past six months.
Sales of SUVs are soaring and the U.S. economy is booming.
Could growth in the U.S. be what drives oil prices higher?
Who Will Blink First?
For oil prices to rise, someone has to blink. Will it be:
B: U.S. shale oil producers
C: The U.S. consumer
I would bet on the U.S. consumer blinking, but with OPEC
and shale production not letting up, we could be in for
years of cheap oil ahead.
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