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Low oil and gas prices expected to continue

4/05/2016 by Sharon Shahzad


In recent months, the oil and gas industries have experienced some extreme turbulence as the prices of energy have slumped, offering cuts for the consumer but pushing profit margins to difficult levels for many companies. However, with horizontal drilling and fracking set to continue, thereby pushing supplies upwards, the low prices are set to continue. It means that companies shouldn’t wait for the trend to be over, but need to adapt to the new market if they’re to survive.

The rise in oil prices over the past four decades has been significant. In fact, between 1970 and 2013, a gain of nearly 900 per cent has been experienced. Compared with a 68 per cent gain for things such as minerals and metals, the growth of oil has been spectacular. However, it seems as if this period is now over, and with ample oil supplies across the globe, the high prices reigning between 2010 and 2014 are set to become history.

One of the many things contributing to the gaining supply of oil is technological breakthroughs within the past decade. Fracking and horizontal drilling has reversed the trends of declining oil production, particularly in the US. In fact, the US saw a growth rate of 88 per cent between 2008 and 2015. A further revolution took place as industry experts began to realise that these technologies could also be used to reach deposits in existing but old oil fields. In recent years, the US has put this into practise. If the rest of the world follows suit, it could mean that an extra 20 million barrels of oil are produced on a daily basis by 2035.

Many expect this heightened level of production to continue adding downwards pressure on energy prices. This could occur either by preventing gains on recent prices of around $53 per barrel, or even pushing prices down even lower. This is the more likely scenario, experts suggest, with the cost for a barrel of oil in 2035 potentially falling as low as $40.

The latest suggestions on oil price and production have some strong implications for the future. Falling prices could actually benefit the global economy. The wealth of oil will also extend humankind’s dependence on this resource, and could dampen research for other energy resources. Climate policies could also be affected, and it is likely that the development of renewables will become increasingly costly as greater subsidies are required. One thing is sure though; oil and gas firms will have to evolve if they’re to survive.

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