Will The Price of Oil Per Barrel Drop to $20?
In a sharp reversal from earlier this year, when traders were looking at $147 barrels of oil and pundits claimed it would never go below $100 ever again, the price of crude oil continues to make new lows. Oil hovers around $43.71 per barrel and looks like it could go even lower.
The United States Oil Fund ETF (NYSE: USO) is also hovering near all-time lows. It’s currently at $34.96, barely above its 52-week low of $33.08 and well below its high of $119.17 set in July.
The price for a barrel of crude has remained relatively stable over the last 25 years, except of the past four years, which have seen prices skyrocketing. It explains why oil giants like Exxon Mobil (NYSE: XOM) and BP (NYSE: BP) have recorded massive profits lately.
Prices would need to approach $30 to be in line historically. And $20 crude isn’t a far-fetched suggestion, either. But perhaps the biggest impact on oil supplies are the projects that produce oil through drilling.
Crude oil requires a long lead-time from exploration to production – up to 10 years or more.
So the question is, how much future production has been based on increasing oil usage figures? If the projects in the pipeline are planning on increased usage, either cutbacks will need to be made, or the price of crude could sink much lower.
Companies mentioned in this article: USO, XOM and BP.
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