There is a popular axiom in commodity markets that says the cure for high prices is high prices. The opposite is also true, and more relevant today. The cure for low commodity prices is low prices. In the oil market, low prices are already beginning to cure low prices. How? Drilling activity is plummeting as seen in my oil rig count chart. At oil prices below $50 per barrel, some U.S. oil wells aren’t profitable so companies are slashing capital budgets and reining in drilling activity. Lower investment and drilling should ultimately lead to lower supply and higher prices.
Jeremy Jones, CFA
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