You’d think the rising cost of oil and the big returns the related exchange traded funds (ETFs) have been dishing out year-to-date would have led to bigger efforts to look for more of the stuff. But it isn’t the case.
Jim Zarroli for NPR reports that things aren’t quite working like they should be. Ordinarily, when the price goes up, so does exploration and more oil hits the market. But this time around, things aren’t going as smoothly.
Oil companies have been largely unprepared for the windfall that $130 a barrel has brought them, and they’ve found themselves flush with cash to spend on new production. Must be nice!
Problem is, the industry is short on both skilled workers and equipment on which to spend the money. One analyst says they’re short of steel and short of pumps – and it takes years to build up the infrastructure necessary to do the exploration.
The other issue is that over the years, there has been a lack of investment in training people to do the job. Instead, oil prices were so low for so long that people were being laid off. Now the industry is finding itself competing for talent and equipment, and it’s coming at a premium.
Further compounding the problem is that Saudi Arabia and Russia are reluctant to enter into any production contracts, because they believe that the price spike is artificial and that increasing supplies would just lead to a crash.
As long as oil prices remain high, the rush to find new oil could continue to benefit oil-exploration ETFs:
- iShares Dow Jones US Oil & Gas Exploration Index (IEO), up 23.4% year-to-date
- SPDR S&P Oil and Gas Equipment & Services (XES), up 19.8% year-to-date
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.