OPEC shocked the globe with its recent decision to cut production. If a cut is achieved it could be expected that prices will rise. U.S. producers, in turn, would begin to ramp up production. The question at hand is, where will this happen?
According to BP’s chief executive Bob Dudley, investments in drilling/exploration are becoming more prevalent again, but only for the best projects. BP stated that they are unlikely to invest in deep-water and/or frontier exploration anytime soon. Dudley says that it would be helpful for oil to be near $50-$55 per barrel, in order to continue offering high dividends to their investors. Dudley was quoted last week in Istanbul, saying “we have let costs drift up when prices are high, then cut back when prices fall.”
There are many who agree with Dudley, when he says that operating costs have gotten too high during a time of historically low margins. On one end, you may see the drilling industry suffering severely, but on the other end, there may be those who believe that this is a blessing in disguise.
Don’t get all upset yet, let me explain this way of thinking…
Having a high cost could force one to find a cheaper way of operating. If operating costs go down and oil prices start to stabilize, then business could be booming again for drillers before we know it. If we learn how to couple modern technology with the need to lower costs, it could make for some attractive margins to come.
As of 12:15 pm, Heating Oil is up .0114 and RB0B is up .0195 cents.
In other news:
- Rig Count comes out today
- Dollar is down
- Crude is trading above $50 today