Reply to thread

The thing about oil is it's much like something kids often try doing with escalators.

Running up the one that's going down.

Every barrel of oil taken from any given well is one less barrel left and as pressure drops and water cut increases, production inevitably tapers off. Slowly but it happens.

Or in simpler words, it's either keep drilling or production slides which then sets up for a renewed spike in prices.

A complicating factor there being that incredibly low interest rates have themselves encouraged drilling. When stocks are at extreme values and money in the bank pays nothing, an oil well needs only to make a small profit to be worth drilling and plenty have done exactly that over the past decade. Now however, with money starting to have at least some value in terms of interest, that comes into question. A well that is marginally profitable is now competing with cash or bonds that, whilst not paying much, do at least pay something.

My thinking being that at least partly explains the sluggish resumption of drilling. Paying down debt becomes a credible alternative use of funds if you're actually going to be charged interest on it.