Oil and Gas Prices: How Low Will They Go?

Not all is dooms day with lower oil prices. This article reflects that the U.S. energy market remains strong, despite lower prices and significant press daily about falling prices.

Brigham McCown contributed to Forbes yesterday with the buzz about crude oil prices sliding as a result of a surge in production and weakening economic news. “Key benchmarks are near to a four year low, with West Texas Intermediate (“WTI”) closing at $81.84, well below the $100 to $120 range reached between 2010 and 2012.”

McCown highlights that these drops have been surprising, with WTI closing down $3.90, or 4.77%  and many other key benchmarks not holding up much better.  Although these types of price drops are not unusual during phases of fragile demand, this time may be different, “it presents an interesting turn from decades of dependency on the political climate in the Middle East.”

In the past pricing has been dependent upon and affected by commotion in the Middle East, for example, in times of war and instability, but the affect has increased prices. Therefore, as the chaos begins to calm down a bit, so too would oil and gas prices, reports McCown.

“Based on historical data, one would expect prices to be dramatically spiking given current events in Syria, Iraq, Libya, yet for all of this instability, prices continue to drop.”, McCown explains.  This results in lower prices for all of the folks filling up at the gasoline pump, with some prices below $3.00 per gallon.

This trend particularly confirms the strength of the domestic energy market, “while the U.S. is still dependent upon imports, surging U.S. production means the country imports far less than it has in years.”

There has been a change in where our oil comes from; Canada has replaced Saudi Arabia at over 3 million barrels per day, making it the largest U.S. importer. Many countries , such as, Russia, Iran and Saudi Arabia, will also feel a pinch as a result of the price drops.

Back in the U.S., smaller companies  may be forced to the sidelines due to expensive production costs.”If the price falls too low, areas dependent upon fracking technology may find it harder to find a profit, especially if oil were to drop into the $60.00 to $75.00 range.”  For right now, such low prices seem unlikely. The main reassuring  fact is that the U.S. energy market remains  strong,  even though prices at the pump are quite low.

Source: http://www.forbes.com/sites/brighammccown/2014/10/15/oil-gas-prices-how-low-will-they-go/

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