Over the last 12 months, oil prices have dropped by half, now hovering around $40 per barrel. We know about the fundamentals: more oil than ever is being extracted from shale reserves. The Organization of Petroleum Exporting Countries (OPEC) and other oil producers are refusing to cut production. And drillers in the U.S. are facing tough times, several driven into insolvency.
But for the past couple of days, the talk of Wall Street has been the prospect that things could get worse, with analysts from Goldman Sacks warning that there is a potential for oil prices to fall to $20 a barrel. It’s what they call a worst case scenario.
Ray Perryman is President and CEO of The Perryman Group, an economic research and analysis firm based in Waco, Texas. He has the details.
“We’ve gotten to the point that most of the shale wells are not economically feasible,” Perryman says. “But even the conventional wells, when you get down to prices at that level, have become very difficult to sustain.”
“The ironic thing is that it’s good for just about anybody except those folks who are in the oil industry or whose business is around an area in the oil industry,” he says.
This is the first shale-related recession we’ve seen, Perryman says, and Odessa gives a picture of what is happening in the oil production industry right now. “Just behind the railroad tracks there’s a yard that has about 40 rigs just standing there idle – standing there in that yard like statues.
“A year ago every one of those rigs was working,” he says.