Lower oil prices bode well for their growth

17. December, 2015 News No comments

Constantly falling oil prices cause deeper cuts to spending and drilling. With WTI dipping to mid-$30s per barrel may even more significantly contribute to deterioration of the situation in the industry and consequently accelerate pace of adjustment.
This might be a sign of faster rebound than we have expected.

2015 was a busy year for the producers, they have survived it because of large reductions in service costs and hedging strategy.

According to Reuters survey, only the 5 of 30 largest oil producers actually expanded their hedging program during the third quarter of 2015. The rest saw their hedging positions erode as contracts expired.

Drilling at $35 per barrel can cause trouble to turn a profit for even the most efficient shale drillers. Extraordinary methods are used on a daily basis and yet Evercore ISI says that a third of the companies in the oilfield services sector may not survive 2016.

The decrease in the number of drilling rigs has accelerated in recent weeks, after a few months of stabilization. All indications are that this trend will continue with oil prices now at such low levels. With a deeper falling in rig counts and drilling levels, new production will be slight and at the same time, old wells will aim to depletion, dragging down overall production.

In other words, lower prices will speed up oil production declines, and only that can help with again rebound of prices.


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