Why oil prices may stay low for another few years

by Laura Ehrenberg-Chesler on April 21, 2016

in Economic Indicators,Energy,inflation/deflation,retail sales

This morning Ed Yardeni had some interesting comments about the excess of DUC’s, “drilled but uncompleted wells”.  He makes the argument that these DUC’s may keep the price of oil lower for longer.  While that may be a negative for industries and states that depend on higher prices, it may continue to be a big positive for other businesses like the airline companies, as well as the individual consumer who will enjoy more dollars in their wallets to spend elsewhere.

On the other hand, US frackers have DUCs, or “drilled but uncompleted” wells. “When oil prices started their long slide in mid-2014, many producers kept drilling wells, but halted expensive fracking work that brings them online, waiting for prices to bounce back,” Reuters explained on 3/21. As the price of oil increases, drillers can easily bring those uncompleted wells online. “Wood Mackenzie reckons that the backlog of excess DUCs will decline over the next two years, and return to normal levels by the end of 2017,” the article states. This ready-and-waiting supply in the wings is likely to keep crude oil prices closer to today’s levels than north of $100 per barrel.”

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