Too Much Oil in the Market

The oil price drop of 70% in the past 18 months is not due to decreased demand, but the oversupply of oil to the market. Oil producers understand this, but no one is willing to deduce supply unless everyone does, be it nations or companies. The problem is that “there is no mechanism or incentive to make it happen that way.” “Saudi production demonstrates to their fellow OPEC members what noncompliance on quotas will cost them all.” For U.S. operators, shale oil fields are complicated, its easy to turn production on and off and try to wait for higher prices when lifting cost is lower than the oil price, however, money borrowed for drilling operations has put many companies in debt and they may default on bank loans.