For weeks now we have seen what happens when Crude Oil Inventory Builds. The price of oil has been taking a beating lately. All over the Marcellus there has been a marked decrease in royalty checks due to the dropping price of oil. Mineral owners are starting to feel the pain caused by dropping oil prices. This is causing the market value of mineral rights to decrease.
Oil Price Volatility
Over the last few months we have seen the price of oil swing widely. Oil shot higher to around $60/barrel after reaching the lowest level in years. It hovered around $60/barrel for a few months before plummeting back down to $45/barrel. The market is still trying to figure out where oil is going to settle. Large operators have curtailed drilling to offset the production but that hasn’t helped the price to stabilize.
With crude oil inventory builds still occurring, there are many reasons to believe the worst has yet to come for oil. Over the next few months we will see where oil goes as operators struggle to meet debt obligations. As oil companies file for chapter 11 it will further help reduce the supply. Eventually this supply will equalize and the price of oil will find stable ground.
Exports and OPEC
There are two things that could cause a massive spike in the price of oil. If the United States were to allow oil exports that could spike the price of oil. However, brent crude prices which are more of a worldwide indicator of price are not substantially higher than WTI. While exports could have a positive effect, it may not be the gain many would hope for. It seems unlikely that the government will take steps to allow exports at this time.
Another possibility is that OPEC decides to reduce their production. In doing so they would be giving up market share. OPEC has been unwilling to give up market share which is why we have seen the price of oil collapse. If OPEC were to change course and push the price of oil higher, we would see a sharp increase in the price of oil.