An increase in the amount of idle rigs and an overflow of oil supplies is causing some experts to think that the oil price could possibly drop even further. One thousand rigs have been marked as idled since the past year and a half, as per a Baker Hughes report. This continuing trend could have extreme effects on the price of oil.
Stephen Schork of Schork Group Inc. believes that the price of oil could fall into the teens and stated that “Oil has become so disconnected to the cost of getting it from the ground that now we’re trading on round numbers. The next target is $25, and then we’ll head to $20. Oil in the teens is a real prospect in the near future.” The price of oil is too jumpy to accurately predict, but one can be fairly certain that it will continue to decrease.
Another fact to consider is that many oil storages have begun to reach full capacity. The Cushing, Oklahoma oil storage facility, which is the largest in the US, can hold another 8.3m barrels until it is at its limit, which would bring its total amount of oil in reserves to 73m barrels. This oil isn’t going anywhere for now, and continued production will simply add to it.
Despite the loss of many idled rigs, newer, more efficient drilling methods have surfaced that enable higher production levels from individual wells, keeping US oil production relatively high. With reserves filling up and overall production remaining high, one can bet that the price of oil will continue to decline lower.
Article written by HEI contributor Timothy McNally.