The Country Caller takes a look at why we might be headed towards another supply glut
The oil markets have finally started to stabilize now and there are rumors that by the end of next year, crude oil prices would average $60 per barrel. The Energy Information Administration (EIA) expects the supply glut to weaken marginally but the main push to the prices would come for the robust energy demand that is expected to come up in the coming years.
The global supply glut was mainly driven by the US shale companies that use new and efficient technology that allows them to pump more crude. But with oil prices touching as low as $27 per barrel during the start of the year the expensive method of oil production is fast losing its popularity.
However, oil analysts must not place their bets on a revival of crude oil prices too soon. As reported by the Wall Street Journal (WSJ), companies have started to pump more crude from the US side of the Gulf of Mexico and this ramp up in output can help offset the losses being brought from shale oil production.
According to the data compiled by analysts and at the Wall Street Journal, BP plc. (ADR) (NYSE:BP) and Freeport Mcmoran (NYSE:FCX) oil and gas projects which were sanctioned for development years ago will begin pumping more crude. These projects, according to the estimates of analysts at Wall Street, are expected to bring in some 500,000 of daily oil production to the oil markets by the end of this year.
The US energy department also shares a similar view as it expects some 1.91 million barrels of oil to be produced by the Gulf of Mexico by 2017 implying a 24% increase in output. In addition to BP and Freeport Mcmoran other major players in the oil markets such as Royal Dutch Shell plc. (ADR) (NYSE:RDS.A), Anadarko Petroleum Corporation (NYSE:APC) and Noble Energy are also ramping up projects in the American side of the Gulf of Mexico.
As reported by the Wall Street Journal, Roger Diwan Vice President at IHS Energy of financial services regarding the issue said that “The projects are coming faster and sometimes bigger than expected.” “The ramp-up seems to have accelerated during low prices.”
There are also reports circulating around the market that at $60 per barrel, oil is sufficient enough to offer lucrative and attractive returns to major oil suppliers. Thus we might see a global glut again in the future which can further lead to declining oil prices.