U.S. oil glut makes $50 oil a possibility

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America’s booming oil industry could help push oil prices lower over the next few years, and some analysts claim $50 per barrel oil is a possibility.

CNN Money reports that analysts at Bank of America Merrill Lynch expect U.S. oil prices to average about $90 per barrel over the next two years, but prices could sink to the $50 level at some point during that time frame. The Merrill analysts also said global oil prices, which more closely dictate the price of gasoline in the United States, are expected to remain high as growth in global oil supplies lags population growth and economic output.

The drop in U.S. oil prices would likely be temporary, CNN Money reports, caused by the difficulty in moving huge amounts of new oil from places like North Dakota’s Bakken shale or Texas’ Eagle Ford to market. New production from those areas has already led to a glut of oil in the region.

“No one expected output to grow by a million barrels per day last year,” Francisco Blanche, Merrill’s head of commodity research, said in a press briefing in New York. “No one.”

As a result, CNN Money reports, oil has been accumulating in Cushing, Okla. – home to the convergence of several pipelines and dozens of oil storage tankers that act as the delivery point for the most commonly quoted U.S. oil price, West Texas Intermediate.

Some independent oil price analysts expect U.S. crude oil prices to fall $10 per barrel during the first quarter of 2013, leaving prices in the mid-$70s.

Crude oil traded Wednesday at $86.80 per barrel in New York, up $.01 per barrel from the previous day. Brent crude traded in London at $109.67 per barrel, a gain of $1.66 per barrel on Wednesday.

Gasoline and diesel prices continued moving lower this week, according to the Energy Information Administration. The average price for unleaded gasoline in the U.S. was reported at $3.45 per gallon, down 4.5 cents from the previous week. Average U.S. diesel prices were $3.99 per gallon, down 3.6 cents per gallon from the previous week.

Given the relatively gloomy outlook for oil prices in the U.S., Blanche suggested the U.S. government may have to approve exports of West Texas Intermediate if it wants the oil boom to continue, as $50 a barrel is below the cost of production.



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Harv    
Tx  |  December, 13, 2012 at 02:33 PM

So, whats the big deal if oil drops to 50 dollars, they have been breaking records on profits for how long?

andy    
TX  |  December, 13, 2012 at 03:52 PM

AMEN!!!!!

Greg    
florida  |  December, 13, 2012 at 06:19 PM

So, the oil that is drilled in the US is sitting and being stored until they figure a way of shipping it offshore for some other country to use. Meanwhile, that US oil will not make our gas cheaper because that price is set by non-americans based on the world price. So, if oil companies are getting the oil for half-price, and not making gas cheaper, those oil companies are going to make a LOT of tucking money!

jmcv02    
manhattan, ks.  |  December, 13, 2012 at 07:46 PM

It costs about $70-80 to produce a barrel of oil in the US, OPEC sits on 80% of reserves but only accounts for about 15% production. Its not the oil companies its OPEC thats bending you over. Oil prices are based on worldwide prices not local. Companies make profit on volume not per unit, if oil is selling for 86.80 a barrel and it costs you 70-80 per barrel to produce that may not leave much profit margin, and its expensive to run oil rigs. Educate yourselves before you speak, I know alot of hard working oilfield guys that are the salt of the Earth.

Rdavis    
Louisiana  |  December, 14, 2012 at 06:59 AM

I agree with you Manhattan, Kansas. The only reason we have sudden increases in oil is "supply and demand". The demand pushed oil over $100 and it made new finds and new technology affordable. We will go back the other way soon enough if it is not profitable to produce the more expensive fields. We as Americans think that oil and food is our right rather than a luxury that this great nation posseses.

Mark    
Central IL.  |  December, 14, 2012 at 09:24 AM

So the $7.50 corn will drop to $3.00 Land prices will drop to $5,000 per acre. Instead of $13,000 Been threw 1 land crisis, Been bankrolling the money for the next 1. My problem is I'll probably jump back in at $9,000. For Effingham county ground that still Way too much ! We just raised 12 bushel per acre corn and paying $13,425 an acre for ground. The money looks better in the bank

Mark    
Central IL.  |  December, 14, 2012 at 09:49 AM

So the $7.50 corn will drop to $3.00 Land prices will drop to $5,000 per acre. Instead of $13,000 Been threw 1 land crisis, Been bankrolling the money for the next 1. My problem is I'll probably jump back in at $9,000. For Effingham county ground that still Way too much ! We just raised 12 bushel per acre corn and paying $13,425 an acre for ground. The money looks better in the bank

jmmj    
Wi.  |  December, 14, 2012 at 10:14 AM

If Corn goes to $3.00 everyone is in big trouble including our city friends, because no one will plant at a lost like that.


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