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Oil Demand Picks Up As Prices Drop

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By Johnny Bevers

Demand for cheap oil is picking up as world markets race to buy and store cheap oil and increase their reserves.  China, for example increased its imports to more than 460,000 barrels per day for an 8.3% increase over 2010 levels.  Guess what?  They’re no stopping!  China is racing to build even more storage capacity so it will have at least 100 days of reserve oil supply by 2020.  Today, China currently keeps about 30 days of supply to meet the demand of its growing economy which is expected to expand by at least 7% in the coming year.  West Texas Intermediate Crude is currently hovering around $65/Barrel, the cheapest its been in almost 5 years and China is buying as much as they can get their hands on.  At the same time, they are moving to complete oil storage facilities that will provide their country with a continued competitive advantage in the global marketplace.

Supply Tightening

As demand increases, oil suppliers are going to be very reluctant to sell oil at these deflated prices.  Historically, OPEC has produced 600,000 barrels more than their stated output levels of 30 million barrels per day.  This excess production will almost immediately be taken out of the market by OPEC member countries.  In addition, big energy companies will not want to sell their oil assets at today’s lower price, which will drive virtually all of them to lower production and not engage in large CAPEX expenditures because the risk/reward valuations just aren’t there.

Courtesy of Politico.Com

Courtesy of Politico.Com

T. Boone Pickens, a long term energy tycoon said he suspects oil prices will bounce back to the $100 dollar range in the next 12 to 18 months because OPEC will have to reduce production for their member nations because many of them rely on expensive oil to balance their country’s budgets and it’s just not fair to them.  Pickens didn’t really address the other two thirds of global energy suppliers though.  Certainly, Russia will reduce (but not stop) their output at these prices as they were already showing signs of being nervous when oil dropped below $80/barrel.  Many oil companies in the United States have also publically announced immediate plans to reduce their capital expenditure budgets they had previously planned for early 2015, putting pressure on oil prices to go back up as available supply gets wrung out of the markets.

Should Americans Get Comfortable With Cheap Gas Prices?

Americans have been given a reprieve at the pump, but shouldn’t run out and buy the biggest gas guzzling SUV they can find because they will most likely be having buyers remorse a year from now.  The glut in oil supply will inevitably go away and prices will rebound in a very big way.  Even if OPEC does everything it can to flood the world with cheap oil, they only control one third of that supply.  The rest of the world’s oil suppliers will slow production at the same time many countries try to increase their reserves.  Cheap gas will be short lived, but hey, enjoy it while you can.  In several parts of the country, gas is being sold at less than $2 per gallon (Oklahoma City)…  Most other locations are well below $3/gallon which was only a pipe dream just a few short months ago.  So, enjoy it America…  Save your money while you can and posture yourself for higher priced oil, because it’s coming sooner than you think.

As energy companies slowly begin to drill again, look for them to continue to hire people if you’re interested in jobs in the Texas oil industry, be sure to visit our article:  Oil Field Jobs In Texas.  You’ll find this information incredibly valuable as you hunt for a career in the Texas oil industry.

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