While drivers have been enjoying low gas prices, investors have nothing but pain in the energy sector as oil prices plummeted from last summer’s high around $106 per barrel.
Luckily for them, oil prices may have finally bottomed out. And OPEC’s decision to maintain production levels – the same move that dropped the prices last year – have some people worried.
After all, we still have a supply glut to contend with, even if demand increases.
But these investors may be looking at things wrong… just take a look at this:
It turns out that oil prices are unlikely to make sudden moves over the short term.
According to Forbes, “Should we expect a sharp rebound in the Brent and WTI prices now that the primary cause of the supply glut is showing signs of abating? We do not think so. That’s because we are talking about sequential month-to-month decline in US crude oil production from these seven regions (see the EIA Drilling Productivity Report for details), which does not reflect the fact that it has already grown by more than 29% year-on-year during the first five months of the year.”
So oil may not surge to record highs any time soon, but there’s one thing we know for sure – U.S. shale producers are becoming more more efficient at drilling.
In fact, companies like EOG Resources (NYSE: EOG) have been able to significantly increase efficiency, leading to reduced drilling days per well average costs. For example, it now takes EOG less than 10 days to drill one of its Eagle Ford wells.
What this means is that EOG can stay just as profitable at $65/bbl oil now compared when oil was $95/bbl back in 2012.
But despite the fact that shale producers are making huge technology strides with every new well drilled, are there perhaps other reasons why investors don’t want oil prices to surge higher?