The Chilling Thing Devon Energy Just Said About the US Oil Glut
The oil-price plunge hit the industry when it was drunk on its own exuberance and awash in money. At the time, over-indebted junk-rated drillers had no trouble borrowing even more to drill more, efficiently or not. Dreadful IPOs flew off the shelf. Misbegotten spin-offs made Wall Street a ton of money. But in July, everything started to go awry. By October, it was clear that the oil-price plunge wasn’t a blip. By November, oil was in free fall.
Soaring production in the US, reaching 9.2 million barrels per day in January, and lackluster demand have caused US inventories to balloon. The “oil glut” was born.
So the industry adjusted by announcing waves of layoffs, whittling down operating costs, renegotiating prices with suppliers, and slashing capital expenditures. The number of rigs actively drilling for oil – a weekly gauge that indicates what’s going on in the oil field – has plummeted by 553 rigs, or 34%, since the peak in October. Never before has it plummeted this fast this far [The Fracking Bust Hits Home].
The crashing rig count was supposed to curtail production, and lower production would bring supply and demand into balance and allow the price of oil to recover. But the opposite is happening. And Devon Energy Corp. just told us why.
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