Kemp: Past Oil Price Slumps Show US Drillers' Inertia

The number of rigs drilling for oil (and for oil and gas combined) remains basically unchanged since prices started to fall in late June, according to Baker Hughes, the oilfield services company.

Crude production has risen by almost 600,000 barrels per day since prices started falling, and is expected to keep rising in 2015, according to the U.S. Energy Information Administration.

There are some important differences between the current slump and its forerunners.

First and foremost, all the previous episodes occurred against a backdrop of slowly declining domestic oil production rather than the boom that has occurred since 2011.

Second, the output from hydraulically fractured oil wells is initially much higher than from conventional wells but then declines more rapidly.

So, production should be somewhat more responsive to the fall in prices and reduced rates of drilling than in previous episodes.

But anyone expecting the plunge in prices to translate quickly into an equally big decline in drilling rates and a sharp reduction in production is likely to be disappointed.

Experience suggests a relatively large decline in prices is needed to generate even a fairly modest response in output.

(Editing by Dale Hudson)


View Full Article


Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.