The crude oil price is low and is not coming back anytime soon. The oil production is not dropping as fast as expected, and it may take years before we see oil prices in the range of $80 to $100 per barrel. New York Times reports:
“United States domestic production has nearly doubled over the last several years, pushing out oil imports that need to find another home. Saudi, Nigerian and Algerian oil that once was sold in the United States is suddenly competing for Asian markets, and the producers are forced to drop prices. Canadian and Iraqi oil production and exports are rising year after year. Even the Russians, with all their economic problems, manage to keep pumping.
There are signs, however, that production is falling because of the drop in exploration investments. Wood MacKenzie, a consulting firm, identified 68 large oil and natural gas projects worldwide, with a combined value of $380 billion, that have been put on hold around the world since prices started coming down, halting the production of 2.9 million barrels a day.
Meanwhile, RBC Capital Markets has calculated projects capable of producing more than a half million barrels a day of oil were cancelled, delayed or shelved by OPEC countries alone last year, and this year promises more of the same.
But the drop in production is not happening fast enough, especially with output from deep waters off the Gulf of Mexico and Canada continuing to build as new projects come online.
On the demand side, the economies of Europe and developing countries are weak and vehicles are becoming more energy-efficient. So demand for fuel is lagging a bit.”
The recent jump in crude oil price
The recent jump in crude oil prices looks more like a fluke, caused by traders, attempting to buy the bottom. Reuters reports:
“Crude oil futures rose more than 2 percent after Venezuela reaffirmed an oil producers meeting in mid-March that would include Saudi Arabia, Russia and Qatar. Prior to the announcement, oil was down as much as 3 percent.
The sharp turn was more of “an emotional move, people thinking they’re going to miss the boat,” said Michael Matousek, head trader at U.S. Global Investors Inc in San Antonio, about the gains in oil.
“People are trying to stay one step ahead, thinking they know what the decision of OPEC will be.”
Shale oil producers
Meanwhile, shale oil and gas producers are struggling to survive:
“Shale producers may not snap back quite as fast as hoped if oil prices stay in the $30-per-barrel range for much longer.
Energy drillers say the U.S. is finally beginning to see real declines in production, and the longer prices stay low, the longer it will take to reverse the effects across the industry of cutbacks in production, capital spending and staffing.
“Now you’re starting to see the decline, and I believe you’re going to continue to see the decline as you move through 2016,” said Devon Energy CEO David Hager to an audience at the annual IHS CERAWeek energy conference this week.
“Right now to summarize it: $30 and $2 does not work — $30 oil and $2 gas,” he said. “Most of us are in place to make sure we can survive, and make sure we are in place when it turns.”
It’s a good question, how many shale producers can afford to stay in business if crude oil price hangs around $30 per barrel level for several years.