Friday, June 10, 2016

$50 a Barrel Oil Is the New $70 Says Expert

U.S. crude oil prices climbed above $50 a barrel Tuesday for the first time in nearly a year, providing energy companies in Houston and Texas hope that a long-awaited recovery is finally taking shape.

Bill Arnold, professor in the practice of energy management at Rice University’s Jones Graduate School of Business and a former energy industry executive, says, “It’s important to recognize that it’s a dynamic market,” Arnold said. “Costs have been cut and efficiency increased during the downturn. As a result, $50 oil is the new $70. If companies and creditors feel this is sustainable, the response could be strong. But having been burned by the double dip last year, companies may hold off for a while.”

Credit: University

Arnold said trading operations in the industry get little attention, but sources told him that “2015 had been the best year in a long time, and 2016 will blow past that. Successful traders make their money from volatility. Gas prices are up 25 percent in a few weeks, and oil is nearly double the low. This provides opportunity — and risk — depending on how traders positioned themselves.”

Meanwhile, several international factors favor tighter supplies, he said, from the terrorism in the Nigerian oil fields to the collapse of the Venezuelan economy and the broken supply chain in Brazil.

Contacts and sources: 
Jeff Falk
Rice University

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