Oil prices rose throughout the 2000s before collapsing recently and shaking economies and governments across the globe. Indeed, as one of the foundations of the world’s economy and financial markets, the oil and gas industry has played a major role in market crashes and recessions over time. We’ve moved from boom to bust and back again with relative regularity. Can we expect the same now that we’ve weathered this recent collapse? Within the context of what’s happened historically, I think we can draw a pretty good picture of the future of oil prices.
From a free market to price-setting monopolies
First, let’s consider where the oil industry came from. It was originally dominated by “wildcatters,” cowboys who drilled as much as they could, anywhere they could. When overproduction crashed prices, they declared bankruptcy and moved, starting over when prices rose again.
Then, a handful of businessmen, John Rockefeller chief among them, took the industry and organized it. The group bought and controlled larger and larger parts of the whole, until it was in a position to manage production and prices. Standard Oil, at its peak, pretty much owned the industry and could set prices at will. At least this was the case until it was broken up into the smaller (but still huge) companies that we think of as the U.S. oil industry even today.Read more of that article by clicking here.
Shale drillers and oil sands producers have posted some healthy profits so far this year, but it’ll take oil consistently above $50 a barrel for their investments to pay off in the long run.
That’s the conclusion of a Moody’s Investors Service study of 37 exploration and production companies in the U.S. and Canada released Thursday. It’s also why legendary hedge fund manager Jim Chanos, who’s shorting shale driller Continental Resources Inc., says independent explorers have been a bad deal for shareholders.
Shale oil producers “are creatures of the capital markets,” Chanos told Bloomberg TV’s Julia Chatterley, Joe Weisenthal and Scarlet Fu. “Because the wells deplete so quickly, they constantly need to raise money to replace the assets.”
Producers in the U.S. and Canada have made dramatic efforts to cut costs since the collapse of oil prices three years ago, with many delivering higher dividends to investors this year. But with limited wiggle room to reduce costs further, any improvement in their ability to sustain healthy returns will have to come from commodity prices, Moody’s analysts Sreedhar Kona and Steven Wood said in the report.Click here to read more.
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