The Case for $100 Oil: More Driving, Less Drilling By Ryan Dezember Wall Street's summer forecast calls for $100 oil. A barrel hasn't cost that much since the summer of 2014, before OPEC launched a price war with U.S. shale producers and sent oil prices into a yearslong slump. Early in the pandemic, prices fell to uncharted depths. But the bust ended last year, when crude prices gained more than 50% and oil stocks led the broader market higher. The benchmark U.S. barrel has added another 16% to start this year, ending Wednesday at $87.35. Brent crude, a key price in international trade, closed at $89.96 a barrel, also up 16% in 2022. Energy shares in the S&P 500 have risen 18% this year, the only sector in the stock index up through Wednesday's close. Analysts expect oil demand to return to pre-pandemic levels this year and say that prices need to rise higher yet to entice U.S. producers to drill more wells and to discourage consumption that has been unbowed by the highest gasoline prices in years. U.S. producers have been rewarded by investors for restraint since flooding the market with shale oil before the bust. Meanwhile, break-even drilling costs are rising because of labor and materials inflation and a shakeout that has reduced capacity and competition for hydraulic fracturing and other oil-field services. “The oil market is heading for simultaneously low inventories, low spare capacity and still low investment,” Morgan Stanley analysts wrote in a research note, lifting their price forecast for the summer quarter by $10 a barrel, to $100 for Brent and $97.50 for West Texas Intermediate. For a longer version of this article online, follow this link. How would higher oil prices change your daily life?Let us know by replying to this email. Your comments may be edited before publication in future newsletters, and please make sure to include your name and location.
Current portfolio of producing wells is very depleted. Fracking sources are very short term. The new large oil fields are in the Arctic Ocean. The oil is there, but it will be expensive to get it.
The US is flush with oil but, you have to drill it out of the ground. However, with Joe Biden policies which restrict oil drilling, has the Federal government investigating so called price gouging, more regulations, the US is back to importing huge amounts of oil. All oil producers in the US will just watch the Federal government. Oil prices will go higher because everyone needs oil to run businesses, power plants, to create aviation fuel to fly jumbo jets, etc. Green energy is very expensive and when they talk about electric vehicles, those same cars consumes huge amounts of electricity produced by power plants run by oil. So, you end up consuming more oil in the process. Russia and Saudi Arabia laughing asses off as the US who was a net oil exporter like a year ago, is now back to being a huge importer of oil. On top of that, the US spiked demand for oil that much higher due to US policies towards US oil companies. Inflation, inflation, inflation is the result.
Less drilling? From the Covid demand crash low of 172 Oil Rigs in July'20 there have been 323 rigs added or an almost 200% increase. Of course that is below the peak but exploration companies (and more importantly their financial backers) are being more prudent this time around.