Not long ago the spot price for WTI (West Texas Intermediate) crude oil was in the neighborhood of $100 a barrel, with crude pumped from local wells fetching in the $80-plus range because of deductions for quality.
Today WTI crude oil is bringing a few cents less than $50 a barrel.
The decrease in price — a pleasant surprise for most folks — has occurred because U.S. production and imported oil each day are about 1.1 million barrels more than is being consumed.
The extra oil is flowing into storage, especially tanks at the country’s trading hub in Cushing, Okla., and has pushed U.S. supplies to their highest point in about 80 years, according to a report from the Energy Department quoted by the Associated Press.
Speculation is that crude prices may dip as low as $20 a barrel. If that occurs — probably well before — production likely would slow until the glut eased off. At the same time, motorists would rejoice from the benefit of lower prices at the pump.
Technology surely has a role in increased production. Horizontal drilling has been an advantage, as has improved fracking methods — although that means of oil recovery has draw fire from many who think toying with any phase of nature can have unforeseen and unwanted results.
Eventually oversupply will rectify itself, in part no doubt when highway driving increases with summer activities and vacations.
An interesting aspect, even with adjustments, will be whether crude oil will continue to flow from wells at a rate that would keep prices low. When prices hit rock-bottom several years ago, locally into single digits, recovery occurred at a steady rate and eventually even led to fears of per-barrel prices climbing as high as $150. Some “experts” predicted prices of $200 and above.
Whether this is part of a similar cycle won’t be known for some time, but there are factors that may contribute to long-range and perhaps somewhat permanent less expensive crude oil.
The green movement has a foothold in the nation. Hybrid cars and others propelled entirely by battery power are being produced in greater numbers, which with proliferation will bring down unit costs and make them more available. Natural gas, nearly a bargain basement commodity at $2.80 per thousand cubic feet, also increasingly is replacing gasoline as motor vehicle fuel.
How quickly these things coalesce into a cleaner and more environmentally friendly means of transporting people and goods is fodder for a guessing game.
Lower crude prices, though, just might be an indicator.
Meanwhile, consumers may be on the cusp of taking advantage of what could be described as trickle-up economic theory. Instead of those at the upper end of the scale having more to spend — or invest according to the oft-failed trickle-down theory — multitudes on the lower side may have more money to put a definitive end to the recent recession.
— Bob Johnson
Is lower-priced oil here to stay?
