By Bob Adelmann
Following the OPEC meeting on Thursday, Saudi Arabia’s new oil minister, Khalid Al Falih, told CNN that $60 a barrel oil is “very possible” by the end of the year, with even higher prices expected next year. . . .
. . . [A] closer look . . . reveals that U.S. crude oil production is down a scant six percent since hitting a peak of 9.6 million barrels per day (bpd) in April 2015. U.S. producers are still pumping at rates not seen in decades, well above nine million bpd. . . .
Another factor is the low break-even points that fracking wells have enjoyed, so prices below $40 a barrel are still profitable. So profitable, in fact, that frackers are beginning to bring their idle rigs back into production. . . .
And then there’s the Gulf of Mexico, unheralded and rarely mentioned, which is becoming an increasing important factor in the supply-demand equation. The EIA estimates that oil production from off-shore rigs is expected to jump eight percent this year and 10 percent next year, . . .
In retrospect, it should be clear, then, that the recent oil spike was driven more by hope than by reality. The production declines caused by fires in Canada and political disruptions in Nigeria and elsewhere are proving to be temporary, while Iran continues its quest to bring another million bpd online this year.
OPEC’s chortling that the “worst is over” is likely to prove premature. History may instead record that $50 oil is the peak for the rest of the decade.