OIL COMPANIES ARE THEIR OWN WORST ENEMY.
In an earlier post, I explained that if the price per barrel drops below $50, drilling is generally unprofitable. And when it is no longer profitable, oil exploration stops. That's what happened during the 2014 U.S. oil bust.
As in 2014, we now have an oversupply of oil. The price of oil is below the $50 benchmark (hovering at $45 per barrel). Yet, unlike 2014, oil exploration is still going. One explanation is that the price is not as low as it was in 2014 and there is a belief that it will stabilize (a.k.a., exceed $50) in the near future.
Another explanation is that the banks and investment firms that financed the expensive new rigs, want at least some return on investment. For them, bargain basement sales are better than no sales.
Of course some companies can't survive at all. Hence the recent surge in bankruptcy filings by gas service companies, pipeline owners and businesses involved in offshore drilling operations.
Related Resources :
Tomlinson, Chris, "U.S. Oil Companies Kill Their Own Recovery", Houston Chronicle, June 30, 2017
Curriden, Mark, "Oil Woes Are Still Spilling Into Bankruptcy Courts ", Houston Chronicle, July 13, 2017
