Even as U.S. oil producers grapple with plummeting prices, widespread layoffs and soaring debts, companies are still boosting their output of crude in a dance similar to countries like Saudi Arabia. The steady stream of oil illustrates a challenging landscape for energy producers: Some are forced to keep pumping to manage ballooning debt obligations or keep their leases, while other drillers are striking revenues through aggressive cost-cutting on the oil patch.
“Some are making money because their costs have come down. Some are hoping prices will come back up. Some are drilling irrationally,” said Michael Webber, deputy director of the Energy Institute at the University of Texas in Austin. “A lot of these guys, they go by their guts. It’s not always an economic calculation; there’s a frontier spirit that they’re not going to give up that easily.”
U.S. crude oil output hit 9.194 million barrels a day for the four-week average ending Jan. 1, 2016. While U.S. crude output has wavered over the last year — dropping from its peak of 9.7 million barrels a day in April — it’s still double the pre-boom levels of 2008.
Brent crude oil prices may reach as low as $20 a barrel, driven by a rapidly appreciating US dollar, Bloomberg reported. According to Adam Longson and other financial analysts, the global oversupply of oil may have pushed its price below below the $35 mark due to being leveraged by the growing strength of the dollar.
“Given the continued U.S. dollar appreciation, $20-$25 oil price scenarios are possible simply due to currency,” according to the analysts’ report cited by Bloomberg. “The U.S. dollar and non-fundamental factors continue to drive oil prices.” Oil prices are already currently at a 12-year low. Its slide from $33.55 to $31.55 this past Monday was the biggest fall since September, affected in part by continuing volatility in the Chinese stock market, which has caused havoc in global markets.
A further devaluation of the yuan against the dollar is also expected to further push down oil prices. “The focus is still on China and the demand concerns in China moving forward into 2016,” an energy market analyst at CHS Hedging LLC, told Reuters.
Sources: Bloomberg | International Business Times