At a time when the oil supply is already vastly exceeding demand, Rystad Energy is estimating that American oil production is going to exceed previous all time records. Rystad Energy is predicting that America will average about 9.65 million barrels of oil per day during 2015, which beats the record set in 1970.
There has been a huge decrease in the number of oil rigs being used, even though the output has been rising consistently. There are only 760 oil rigs now being used, which is a 53 percent decrease from October. While you might think that the number of oil rigs directly related to oil production, that is actually not true, just like now where oil production is booming but the rigs are slumping. This is partially due to the there being such a delay in between production and loss of oil rigs, which means it will be another six months or year before we feel the impact of the decrease in oil rigs. Wells can be drilled out around a year before the oil gets pumped out, which is why there is such a difference in production and rigs at the current moment.
The economists and investors on Wall Street had been hoping that the decrease in rigs would set the oil market right again, meaning there wouldn’t be this huge overflow of oil, but that hasn’t happened yet. When it does happen, it will do some damage control on the markets, and we will likely see higher gas prices again. The cut backs on spending and decrease of rigs will also hurt the production, but again, that is something that won’t happen for at least six more months if not up to a year from now. If the United States ends up pumping out the predicted oil amounts, it would only put America behind Russia and Saudi Arabia, which is huge. If you include gas liquids then America will likely reign as top oil producer yet again.
Rystad Energy believes that another record will be coming in 2016, as it will take a long time for the below $50 a barrel prices to truly impact oil production. It’s highly likely that these low prices will stay well into 2016, and if it does go up, it would not go near $100 a barrel. American production will continue to exceed records and expectations, which means it would take about 4 years for prices to go back up to $100 a barrel, which is great news for the economy.
If Americans feel safe about the oil prices being low for the next few years, it is more likely they will start spending that extra money they are saving at the pump in retail stores. Right now, Americans are leery on how long the low gas prices will last, and that is part of the reason why they are hoarding their money. If we get into 2016 with the prices being this low, especially around election time, then Americans might find themselves feeling more comfortable with throwing away some of the cash that is being saved on gas. The only true negative about this situation is that it means the energy sector will continue to crash, with more jobs likely being eliminated, and that could really harm the economy next year. If the rigs keep getting shut off because America is exceeding oil production again, then workers will be forced to go into another type of work, and those jobs that are leaving might not come back at all depending on how the next year or two goes.
