Oil’s Next ‘Scary Price Point’ May Close The Spigot

oil-drop-dollarsignBY GILLIAN RICH, INVESTOR’S BUSINESS DAILY – January 15, 2016

Oil prices are nearing the point where pumping crude out of the ground ceases to be economical across the U.S., meaning the flow of oil — and cash for production companies — could dry up.

On Friday, U.S. crude futures settled down 5.7% at $29.42 a barrel, and Brent fell 6.3% to $28.94. With prices already below $30, no U.S. shale oil company is making money from operations, said Jason Wangler, a managing director at Wunderlich Securities.

The next “scary price point” is $20 a barrel, he said. That’s when the production of oil itself — just the cost of lifting it to the surface, excluding overhead, interest and one-time drilling expenses — is no longer feasible.

And $20 a barrel is a possibility. Analysts at Citigroup (NYSE:C) and Goldman Sachs (NYSE:GS) have said oil could fall as low as $20 a barrel this year. That would be the “absolute bottom for oil prices in the short term,” and in some places $30 a barrel is the bottom in terms of the marginal cost of production, said James Williams, an energy economist at WTRG Energy.

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