According to the former heard of oil giant Royal Dutch Shell, the price of oil should spike up to $80 once the current surplus of oil is eaten up by the market. Mr. John Hoffmeister bases his prognosis on the fact that it isn’t very quick and easy to get rigs going again to pump oil to meet demand. Currently, there are lots of rigs being decommissioned. In fact, the number of rigs in the US, according to the most recent oil industry figures, has fallen by a whopping 209 rigs. It’s not like oil services companies can easily assemble 209 rigs. It takes time to put up rigs and get them pumping oil. This gap between the current oil surplus being used up by the market and the ability of producers to meet demand is what will put upward pressure on the price of oil according to Hoffmeister.
Hoffmeister may be on to something. After all, the number of shale oil permit applications have been dropping. Add to this the fact that Chinese oil rig manufacturers are having a tough time finding buyers and it is obvious that overall drilling activity has gone down significantly. What might throw Hoffmeister’s prediction off is if the current global economic slowdown deteriorates further. Hoffmeister’s focus is on oversupply. What about the soft demand? This is the other end of the equation and, according to the IMF, things aren’t going to improve much in 2015 and the year after.
Still, Hoffmeister’s prediction might pan out although we also suspect that there is now a ‘natural ceiling’ to the price of oil. How? If oil inches close to $100 per barrel again, oil sand and shale oil operations might be revived and these might crash oil’s price close to $50 per barrel once again.
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