Impact of Crude Oil Prices on Bakken Royalty owners
Crude Oil Price
Crude oil price for March settled up over $3.00 today. With the current crude oil market significantly depressed due to lower global demand and higher inventories, any increases in price is good news for Bakken mineral owners. But let’s talk about what is happening with the price of crude oil and the likely contributing factors to the lower prices our readers are seeing on their paychecks.
Impact of crude oil prices on North Dakota royalty owners
Over the past few months, our readers have experienced a gradual decline in the price of crude oil they are seeing on their royalty check stubs. Unfortunately, the next few checks are likely to be worse. If you are fortunate enough to have a royalty check from one of the major oil and gas companies, you are likely to benefit from their hedged positions. However, if you are receiving income from a smaller operator, the price impacts are going to be very noticeable.
Why is the crude oil price dropping?
There are many theories behind the sudden drop in crude oil prices. These theories range from geopolitical and conspiracies to supply and demand balances. We tend to focus on supply demand balances and leave the conspiracies to others.
In January, U.S. crude oil inventories hit an all-time high of 407 million barrels. To put this in perspective, the Strategic Petroleum Reserve has a capacity of 727 million barrels and in 2013 the US consumed almost 19 million barrels of oil per day. We have enough oil in tanks across our great nation, to supply our needs for 21 days! That may not seem like a lot, but considering just a few years ago, the market was short and crude oil imports remained high, this is very significant and has had a major impact on the current crude oil price. If our government believes that approximately 38 days of reserved oil supply is required for emergencies, then naturally having an 21 additional days excess supply in the market is going to impact the crude oil price.
What will it take to get back to higher prices?
We all like cheap gas when we pull up to the station, but royalty owners, especially those on fixed incomes prefer higher checks to lower prices at the pump. What do we need to get back to a respectable crude oil price?
Over the next six to eighteen months, we need to be monitoring the following:
Drilling cutbacks will be needed to stabilize the market. Too much supply right now and we need a little slowdown.
Analysts predict we need a 20% drop in U.S. production to eliminate a global oversupply of as much as 2 million barrels per day.
Increases in both domestic and global demand for oil products. Generally speaking, the economies of the world are not the healthiest. We need some real growth to reduce inventories.
OPEC – the wildcard. We need them to decrease production. Just that simple.
We cannot afford refinery hiccups. Refineries across the nation need to be running at the highest utilization rates with as little downtime as possible. Oh, and can we not build a new refinery already!!!
We need to monitor the government’s decision to export crude oil or condensates. It is time to reevaluate this decades old law to determine if the time for change is now.
There are more factors that we here at Bakken mineral owner monitor, but these are the items we believe will be the most critical.
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