It’s no secret that there’s been a rather large shift in oil prices over the course of the last eight months or so. The prices are dropping as the output is increasing, and this is causing turmoil and financial heartache amongst many oil producers. It’s easy to see that the reason for the low prices is the fact that there is so much supply. It’s simple economics. When supply outweighs demand, the prices will drop. It hasn’t been quite this bad for the oil industry in a long time though.
One of the biggest reasons that the oil industry is in such a conundrum today is OPEC. They are still sticking by their decision from November, when they decided that they would not cut back their own production of oil. They felt that this move would actually force other countries, including the United States, to reduce their own oil output to settle the prices. The United States has been experiencing a huge boom in the energy field lately, and certainly didn’t want to curtail this by suspending production.
The losses in oil are starting to affect other commodities as well. As the cost of energy drops, the cost of producing raw materials drops as well. This has pushed the price of copper to a five-year low, and it is possible to trace it all back to the dropping oil prices. Some investors are even saying that they are starting to withdraw from commodities because of this.
China has been buying more oil than usual lately, which seemed like good news for oil producers at first. However, even though they are buying, it’s at bargain prices and they are using it to fill their reserves. It does not actually show that there is a strong demand in the country that could lead to continued sales. China has actually been facing a much slower economic growth in the past couple of years than expected, so demand will not likely increase in the country anytime soon.
What will happen to the price of oil now, as OPEC still refuses to slow their production? Already, the price of oil is below $50 a barrel, and that’s a huge concern for many producers who are trying to figure out how they can withstand the financial crunch they are facing. Many have had to cut staff. Others have reduced or eliminated their exploration for new drilling sites. There is a lot of belt tightening happening right now, and it seems as though neither of these sides will capitulate.
About OWI
Oil Works, Inc. is a complete drilling rig manufacturer and service provider based in the Permian Basin for over 20 years. OWI’s product and service offerings include Derricks, Substructures, Drawworks, Mud Systems, Rig Walking System, Power Generation, Control Systems, Iron Roughneck Repair and complete Rig Solutions built to API and ISO standards. OWI is also proud to offer 24/7 Service and Support.
