• 1 day Shell Oil Trading Head Steps Down After 29 Years
  • 1 day Higher Oil Prices Reduce North American Oil Bankruptcies
  • 1 day Statoil To Boost Exploration Drilling Offshore Norway In 2018
  • 1 day $1.6 Billion Canadian-US Hydropower Project Approved
  • 1 day Venezuela Officially In Default
  • 2 days Iran Prepares To Export LNG To Boost Trade Relations
  • 2 days Keystone Pipeline Leaks 5,000 Barrels Into Farmland
  • 2 days Saudi Oil Minister: Markets Will Not Rebalance By March
  • 2 days Obscure Dutch Firm Wins Venezuelan Oil Block As Debt Tensions Mount
  • 2 days Rosneft Announces Completion Of World’s Longest Well
  • 2 days Ecuador Won’t Ask Exemption From OPEC Oil Production Cuts
  • 2 days Norway’s $1 Trillion Wealth Fund Proposes To Ditch Oil Stocks
  • 3 days Ecuador Seeks To Clear Schlumberger Debt By End-November
  • 3 days Santos Admits It Rejected $7.2B Takeover Bid
  • 3 days U.S. Senate Panel Votes To Open Alaskan Refuge To Drilling
  • 3 days Africa’s Richest Woman Fired From Sonangol
  • 3 days Oil And Gas M&A Deal Appetite Highest Since 2013
  • 3 days Russian Hackers Target British Energy Industry
  • 3 days Venezuela Signs $3.15B Debt Restructuring Deal With Russia
  • 3 days DOJ: Protestors Interfering With Pipeline Construction Will Be Prosecuted
  • 4 days Lower Oil Prices Benefit European Refiners
  • 4 days World’s Biggest Private Equity Firm Raises $1 Billion To Invest In Oil
  • 4 days Oil Prices Tank After API Reports Strong Build In Crude Inventories
  • 4 days Iraq Oil Revenue Not Enough For Sustainable Development
  • 4 days Sudan In Talks With Foreign Oil Firms To Boost Crude Production
  • 4 days Shell: Four Oil Platforms Shut In Gulf Of Mexico After Fire
  • 5 days OPEC To Recruit New Members To Fight Market Imbalance
  • 5 days Green Groups Want Norway’s Arctic Oil Drilling Licenses Canceled
  • 5 days Venezuelan Oil Output Drops To Lowest In 28 Years
  • 5 days Shale Production Rises By 80,000 BPD In Latest EIA Forecasts
  • 5 days GE Considers Selling Baker Hughes Assets
  • 5 days Eni To Address Barents Sea Regulatory Breaches By Dec 11
  • 5 days Saudi Aramco To Invest $300 Billion In Upstream Projects
  • 5 days Aramco To List Shares In Hong Kong ‘For Sure’
  • 6 days BP CEO Sees Venezuela As Oil’s Wildcard
  • 6 days Iran Denies Involvement In Bahrain Oil Pipeline Blast
  • 8 days The Oil Rig Drilling 10 Miles Under The Sea
  • 8 days Baghdad Agrees To Ship Kirkuk Oil To Iran
  • 8 days Another Group Joins Niger Delta Avengers’ Ceasefire Boycott
  • 8 days Italy Looks To Phase Out Coal-Fired Electricity By 2025
Alt Text

Can Oil Prices Hit $65 This Week?

Crude prices climbed quickly as…

Alt Text

Oil Prices Nosedive On Bearish IEA Report

Oil prices are cratering after…

Nick Cunningham

Nick Cunningham

Nick Cunningham is a freelance writer on oil and gas, renewable energy, climate change, energy policy and geopolitics. He is based in Pittsburgh, PA.

More Info

Oil Prices Won’t Recover Anytime Soon Says Exxon CEO

Oil Prices Won’t Recover Anytime Soon Says Exxon CEO

There is mounting evidence that oil prices are poised to rebound from a historic bust.

Rig counts hit new lows each week. For the week ending on April 17, Baker Hughes says the U.S. lost an additional 34 oil and gas rigs, bringing the total down to 954. Domestic crude oil production appears to have plateaued and the EIA expects a contraction in May. Nearly every driller is dramatically scaling back spending, which should increasingly cut into new output. And oil consumption is finally picking up, as drivers far and wide take advantage of cheap fuel.

But what if the bust is not over yet? Despite the signs of a rebound, ExxonMobil’s CEO Rex Tillerson has a much more bearish take on oil prices. Speaking at the IHS CeraWeek conference in Houston, Tillerson predicted that oil prices would remain subdued for the next several years. Related: Saudi Price War Strategy May Blow Up In Their Face

While the longer-term is harder to predict, there is quite a bit of evidence to suggest that oil prices may not rise much higher than where they are right now in the short-term. For one, crude oil inventories continue to build. Although the stock build has slowed in recent weeks, it is still dramatically higher than the five-year average. Until production slows to the point that consumers are drawing down inventories faster than they can be replaced, oil prices have little room to rise.

USCrudeOilStocks

Another significant factor that could limit any further increases in oil prices is the enormous backlog of wells awaiting completion. Since most of the value of oil and gas coming out of shale occurs in the first few months of production, drillers are avoiding completing hundreds of wells because selling into the current low-price environment would earn them a lot less cash than if they wait until prices rise again. As a result, there is a vast collection of shale wells that will be completed once oil prices increase (an estimated 900 in North Dakota alone), which could bring a flood of new production online. The effect on prices is debatable, but the CEO of ConocoPhillips thinks it could send oil prices down once again.

“If you get a price signal, you'll see more supply come on,” ConocoPhillips Ryan Lance said at CeraWeek. “That certainly has the opportunity to exacerbate the problem depending on where demand is.” He went on to add, “If $80-$90 [per barrel] comes back, there's a good chance that $50-$60 comes back as well because of all the new oil that will come online from completed wells. Boom, bust, boom, bust.” Related: What Happens To US Shale When The Easy Money Runs Out?

Moreover, the industry is seeing substantial declines in costs for drilling. When oil prices are high, costs to drill rise as demand for equipment, rigs, and other oil field services increases. But, just as high oil prices can be inflationary on costs, an oil bust has a corresponding deflationary effect on costs. As companies like Halliburton, Schlumberger, Baker Hughes, Transocean, and others are finding out, service companies are being forced to slash their prices for drilling services amid collapsing demand for drilling. Upstream producers stand to benefit in the meantime. In other words, low oil prices allow for costs to decline, which allows more companies to stay business. As a result, oil prices tend to stay lower, longer.

Finally, there is the issue of OPEC. Saudi Arabia is now producing oil at the highest level in decades, in an effort to keep the heat on higher cost producers. Elevated production from OPEC probably won’t change anytime soon. Worse yet for oil prices, is the potential for Iranian crude to come to global markets. If a nuclear deal can be finalized, Iran could step up production in 2016, adding more supplies to an already well-supplied marketplace. Related: Oil Price War May Benefit Both US Shale And Saudi Arabia

Obviously, there is a ton of uncertainty. Oil markets are already starting to adjust with the pending production cutbacks from U.S. shale. That could lead to higher prices.

But facing headwinds, it may not be enough to raise prices any further, increasing the possibility of an extended down period for oil. For smaller companies, that could be devastating. But the majors view this is a normal a business cycle. When asked what the energy industry would look like several years from now after a long stretch of lower prices, ExxonMobil’s Tillerson said defiantly, “we will still be here.”

By Nick Cunningham of Oilprice.com

More Top Reads From Oilprice.com:




Back to homepage


Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News