Don’t blink! With oil up almost 20% in 3 days industry experts are starting to wonder if this is a temporary blip or if we’ve actually found the bottom of the oil market. For months on end now we have seen the price of oil sharply decline from over $100/barrel to less than $50/barrel. We might now be seeing the price of oil stabilize. Even if the price of oil were to drop back down to the $45/barrel level we have been at, the fact it is maintaining a level and not continue to fall is a positive sign for mineral rights.
As the industry tries to figure out the true value of oil, we’re just now getting the first signs that the price may have dropped to far. Over the next couple weeks, it will be interesting to keep an eye on the oil and market and see where we go from here. If prices remaining where they are or higher for the next month, we may have finally seen the bottom and the market may be turning the corner toward a recovery. With oil up almost 20% in 3 days, what does this mean for the future of oil prices?
The future of Oil Prices
Even with oil up almost 20% in 3 days, we still have a long way to go. Fundamentally this decline in oil prices is different than any decline in the past. For the first time we are seeing the price of oil decline due to the global oil market being flooded by true supply and not artificial supply created by OPEC. This means that as the price of oil recovers, it’s going to do so much slower than it has in the past. OPEC no longer has the ability to simply turn the tap on and off and change the world price of oil. With the United States playing a big role in production, the price of oil is going to be more closely tied to what US Producers are doing.
We have already seen a large cut to capital budgets coming out in earnings reports. We’re not even through the Q1 2015 so we will likely see even more capital budgets slashed as the current prices don’t make all drilling opportunities as interesting. Due to the steep decline from shale wells, we could see prices start to turn around in a big way toward the end of 2015 or early 2016.
Since it’s impossible to predict the market, it’s really anyone’s guess what the price of oil will do from here. All we can do is keep an eye on the factors that affect oil supply and adjust accordingly.
If you’re a mineral owner concerned with oil prices, there’s no reason to be concerned. Oil prices always move up and down and it’s just part of the industry. The value of oil and gas royalties is still there and oil will still be produced.
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