After our recent article on how crude prices are affecting mineral owners, we’ve been keeping a close eye on market changes. When the government reports crude inventories, it’s expected that inventory levels are going to have increased. When crude inventory increases, it could have a negative impact for mineral owners.
How Crude Inventory Increases Affect Oil Price
When the amount of crude inventory increases, it can have a negative affect on prices. The reason it can have a negative affect is because there is additional oil (supply) at the country’s disposal but no one needs it. This means that the demand for oil does not meet the current supply, which has a downward force on the price of oil. This could be due to the fact that companies are producing oil in higher volumes, or it could be because demand has slowed down. It could also be a result of both factors at work! Regardless of why it’s happening, this will put further pressure on oil prices to move lower.
The West Texas Intermediate price which was up early this morning, is now back close to even in afternoon trade. With traders anticipating higher crude inventories, they are already pricing in lower oil prices right now. If you want to keep an eye on the weekly crude oil inventory, check the link below each week:
Weekly Petroleum Status Report
How Oil Prices affect Mineral Owners
One of the ways that lower oil prices can affect mineral owners is the value of their royalties. Your royalties will be directly impacted by lower oil prices because the value of the oil coming out of the ground is now less. You may not see an immediate impact on your royalty checks, but you’re likely to see them start to decline quickly over the next few months if oil prices stay this low. Some mineral owners choose to sell royalties so they can avoid the fluctuating value of their royalties. Sometimes oil prices stay low for a very long time and sometimes it’s just a temporary dip.
If you own non-producing mineral rights, the impact will not be as noticeable immediately. Right now oil and gas companies are keeping a close eye on oil prices as they plan for 2015. While there is unlikely to be an immediate impact, you could see reduced leasing activity and reduced lease bonus amounts going forward if prices stay low.
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