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Advancing Utah's Energy Future

Drilling is down, driving is up in wake of low petroleum prices

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Jonathan Thompson – High Country News

There’s an adage in the oil and gas industry, one that could apply to almost any commodity, really: “The best cure for high prices is high prices, and the best cure for low prices is low prices.”

That is: High prices lead to more drilling leading to greater production and thus greater supply. Meanwhile, those same high prices encourage conservation and dampen demand. Supply exceeds demand, and prices drop, so that it’s no longereconomically feasible to be drilling wells at a cost of $2 million to $20 million a pop. The drill rigs come down and production declines (because oil wells, particularly those going for oil in shale formations, produce less and less over time). Meanwhile, the low oil prices entice people to pull their SUVs and gas-guzzling toys out of the garage and drive more, thus increasing demand. Demand outpaces supply, and prices go back up. It’s a wacky ride, but it is, at least, somewhat predictable on a grand scale: What goes up must eventually come down, and vice versa.

About a year ago, after a barrel of oil had been selling for around $100 for years, the high price cure kicked in. The West Texas Intermediate oil price plummeted from $107 per barrel in June 2014, its peak, down to about $80 per barrel in October, to just $43 per barrel in March of this year. Suffice it to say that high oil prices are deep in remission. And this is what the “cure” looks like on the ground, and in the economy: (…)

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