Implications of $50 Oil | Russell T. Rudy Energy LLC
Crude oil’s recent flirtation with $50 per barrel has raised hopes in the oil patch, but what does it really mean? According to a recent article in “World Oil”, the answer is not much. Oil prices have recently rallied largely due to falling supply. Rebels blew up pipelines in the Niger Delta, wildfires shut down Canadian oil sands production and U. S. shale oil production is falling off.
While any price increase is welcome news, the Nigerian pipelines will be repaired, the Canadian wildfires have been extinguished, and as prices rally, resumption of shale output is possible. All of these factors could cause the recovery to stall or reverse.
There is an old saying that “A burnt child fears fire” and this is true when it comes to energy investment in our present situation. Many industry observers feel that a price rise to the mid $50’s, and signs that it is sustainable, will be necessary for us to see more money invested in exploration and development projects.
According to consultants Wood Mackenzie, the world’s 50 largest publicly traded oil companies need an average price of $53 per barrels to stop bleeding cash. However, when prices get into the mid $50’s we could see hundreds of drilled but uncompleted (DUC) wells coming on stream each month, according to William Folles with Bloomberg Intelligence. While this is good for operators’ revenues in the short term, it could cause downward pressure on prices.
$50 oil is not even great news for most OPEC countries which need much higher prices to balance their budgets.
However, Michael Wittner, with Societe Generale, chooses to conclude that the glass is half full. He believes that “Fifty dollars is for real whether or not we close there today. There may be a pullback but it’s only going to be temporary if it occurs, because the second-half rebalancing is almost at hand.”
Let’s hope that he is right.
To read the article in its entirety, please go to http://www.worldoil.com/news/2016/5/26/oil-s-brief-50-breach-doesn-t-mean-much-unless-it-sticks-around .
Russell T. Rudy Energy, LLC buys oil, gas and mineral interests nationwide. Please call (800-880-0940), or write (info@rudyenergy.com ) to let us know if you agree, disagree or would just like to comment on this, or any of our posts.
