Last fall, it seemed the end of the global oil glut was already at hand, when optimism soared after OPEC’s commitment to speed the process by limiting production. Oil prices were expected to quickly move to $55 and $60 per barrel, and then continue climbing in 2017. The rig count rose, and jobs began to return throughout the oil patch.
But it has since become another false start for oil markets. Oil prices remain mired between $45 and $50 per barrel, and price expectations – measured by the futures market for West Texas Intermediate – have fallen back to levels well below those that prevailed before the OPEC accord. The domestic rig count has peaked for now, and the big investment houses forecast a decline in domestic drilling through the second half of this year.
What happened? American fracking ran the recovery off the rails. A competitive industry that – in principle -- should move oil output and price to stable long-run levels, fracking is once more living too high on large subsidies to its capital base and operating costs. This leaves oil markets locked in a destructive cycle that has again reached the stage of over-production and depressed price. It has brought us to the brink of yet another pull-back in U.S. drilling activity, and another round of financial stress for many producers.Read more by clicking here.
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