Will Oil Drop Below $70?

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As improbable as it seemed in June when crude prices topped near $100 a barrel, the prices have rapidly fallen to below $76.50. Much of that drop has happened in the past five days. A price of less than $70 is not impossible, and it may be likely.

Most of the reasons for oil prices to continue to drop are already in play. Saudi Arabia announced a plan to target U.S. oil prices, which pushed prices down and will push them down further. Other pressures have been in place for weeks and will continue to be, according to Bloomberg, as it commented on the decision by the Saudis:

The price cut comes amid an increase in U.S. supplies because of rising production from shale formations. U.S. crude inventories rose to 379.7 million barrels in the week ended Oct. 24, the highest level since July, the Energy Information Administration, the Energy Department’s statistical arm, said last week. Stockpiles may have increased for a fifth week in the seven days ended Oct. 31, according to a Bloomberg survey before this week’s report.

However, there is a school of thought that rising shale production could put a floor on prices. Dave Lesar, co-chief executive officer at Halliburton, told Bloomberg:

Unlike with conventional oil, shale wells peter out quickly and companies depend on constant new drilling to maintain production levels. This also makes shale more responsive to price movements. Lower prices will discourage new drilling, quickly removing the glut in crude supplies.

For the time being, Lesar’s comment puts him in the minority.

Jason Bordoff, director of the Center on Global Energy Policy at Columbia University, told NPR:

We may see some slowdown in the growth rate of U.S. oil production, but I think U.S. oil production will continue to grow.

Bordoff is among the experts who think oil prices will drop below $70 a barrel. A great deal of evidence supports his opinion.

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