The Age Of Cheap Oil Is Over
The longer I look at what is going on today with oil prices the less it makes sense to me. I know there are a lot of experts who blame this all on the “glut” of oil created by overly aggressive U.S. upstream companies that took all the cheap money they could get to “Drill Baby Drill”. However, the size and speed of the drop doesn’t seem justified when there is still plenty of room to store the short-term oversupply. Last week’s Department of Energy crude oil inventory report shows that we still have plenty of room in the storage tanks. In fact, the DOE reported a draw from storage of more than 3 million barrels for the week ended January 2, 2015.
Granted, oil storage levels are running above the previous 5-year average, but with a worldwide “glut” of oil production, why would refiners need to pull oil out of inventory?
There is some truth to the U.S. rapidly increasing oil production eating into Saudi Arabia’s market share, but to say we have some sort of global supply glut that cannot be absorbed by this market is nonsense. Humans are forecast to burn up 34.3 BILLION BARRELS of liquid hydrocarbon based fuels in 2015, so the “glut” argument seems to be quite a stretch to me. Plus, the demand for oil goes up by another 300 to 400 million barrels each year.
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