Boom and bust is built into the DNA of the global oil industry because of the way bringing new fields online works.
Typically, oil prices are boosted when a new field is discovered as producers invest heavily in bringing the oil to the surface.
Then the value of the field slumps when rival fields come online at the same time.
To combat the losses, oil companies cut jobs and investment until prices rise again, which sees them jump back on the same bandwagon following the same cycle.
The world is witnessing the start of an oil boom cycle as prices per barrel have slowly climbed back to $70 after years in the doldrums.
Companies in deep water
The prospects of returning the good old days when the cost of a barrel of crude was as high as $147 are unlikely.
But the upwards shift is encouraging for oil producers harnessing more expensive methods of extraction away from drilling.
Drilling and refining costs in deep water, for instance, mean producers must sell at $90 a barrel to break even, while wells can take years to bring online.
But shale oil exploitation is profitable at $70 a barrel, and new fields are cheaper and much quicker to tap as little deep well drilling is involved and the extraction takes place onshore.
In the US, shale oil output is 10 million barrels a day – equalling the deep well output of n early 50 years ago.
US to start exporting again
If the market trends continue, America could become a net oil exporter again for the first time since 1953.
The market has a political as well as an economic level.
America is not part of OPEC – the trade body for oil producers. OPEC has set production limits to manipulate supply and to drive up prices.
Not only does the US not have to import so much oil, but president Donald’s Trump America First policy is likely to mean he will encourage shale oil extractors to continue their frenzy to carry on doing the same without any brakes or controls.
This could see the shale oil industry hit 11 million barrels a day output a full 12 months ahead of expectations.
