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Oil Price Could Drop Into The Teens

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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.

1 Comment on "Oil Price Could Drop Into The Teens"

  1. This is counter intuitive as the very law of supply and demand suggests that with demand soft and supply slowing, one would imagine that rather than going south, the cost of oil would more start to trend to the average cost of production plus margins which in some circles is believed to be around $60 – $75USD per BBL.

    The real issue continues to be the cost of speculators on the cost of oil globally. When looking at the Brent and West Coast Intermediate indices that disparity needs to be analyzed and truly dissected to see what the real impact.

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