Not Even OPEC Can Fix the Oil Glut

By Published on December 30, 2015

Surprisingly strong crude output in the U.S. and Mideast over the past year pushed oil prices to their lowest levels in more than a decade. But for investors trying to determine whether the oil market is close to a bottom, the pace of production elsewhere in the world is a key source of uncertainty.

Producers in Russia, Brazil and Norway pumped more oil in 2015 than the closely-watched forecasters International Energy Agency and Energy Information Administration had projected. Meanwhile, oil-field investments made years ago when prices were higher are set to begin producing, even as exploration-and-drilling projects scheduled to bear fruit in the coming decades are being delayed or canceled outright.

Investors’ increased focus on supplies from outside the U.S. and the Organization of the Petroleum Exporting Countries underlines uncertainty about the magnitude of a global oil glut that has erased more than 60% off the value of a barrel of oil in the past 18 months.

On the one hand, analysts say, low oil prices can cause oil wells to deplete more quickly, because companies spend less to maintain fields and enhance production from aging wells. On the other hand, producers have surprised investors in the past year with their ability to increase drilling efficiency and cut costs.

 

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