Monday, June 26, 2023

"Where Are Oil Prices Going? It's Complicated"

 From OilPrice, June 25:

  • Tighter supply conditions are on the horizon in global crude markets.
  • The 1 million bpd extra production cut from Saudi Arabia is set to tighten physical oil markets in July.
  • Global macro-economic headwinds keep oil prices back.

Oil and gas drilling in the U.S. shale patch is slowing down. Rig counts have been falling for weeks, and the latest Dallas Fed Energy Survey also showed that activity is weakening.

Some say this would lead to supply shrinkage, which would push prices higher. Others remain cautious as they watch where demand is going, suspecting it will remain weak, keeping prices where they are. "It is hard to be in the production business these days."

The above quote is part of a comment made by a respondent to the Dallas Fed survey. That same respondent summed up the main challenges that the U.S. oil and gas industry is facing right now as follows: "The state regulatory environment is worsening. Costs continue to increase just to do business. Insurance companies are leaving the business."

Indeed, it seems tough to be in the production business these days, and those who are in the business nevertheless are taking measures to ensure they stay in business. That production growth is not among the top priorities has already become firmly established. But it's not only production growth. Drillers are actually curbing drilling activity....


I can't help thinking about a joke from the 1986 oil price collapse, when WTI dropped below $9.85 from $23.30 six months earlier and $35 in 1981: 

Investor: I'm getting nervous, I'm hearing bankruptcy rumors about everybody in the patch, how slow is it? 

 Oil CEO: Well, we're down to two hookers, and one of them's a virgin. 

 Investor: Oh.