On Bauer Business Focus—A conversation about the current fluctuation of oil prices with Houston Public Media News 88.7 Business Reporter Andrew Schneider.
This week saw a steep drop in the price of oil after Saudi Arabia increased its supply to the North American market, prompting discussion of how low prices can go and the effect on U.S. drilling.
Christopher Ross, executive professor of finance at the C. T. Bauer College of Business, stopped by Bauer Business Focus to discuss the implications of the price drop. The lower the price goes, the shorter time it will stay there, Ross said.
“I think the immediate effect will be relatively modest,” Ross added. “In terms of how low it will have to go, if companies thought the prices were going to stay at $70 a barrel, the price out in west Texas, or lower for two years then you would see a tangible decrease in drilling.”
At $70 a barrel, the revenue stream isn’t enough to justify the amount of wells that are currently being drilled, causing concern for U.S. drilling companies, Ross said.
“Some wells are profitable below $70, but there are quite a number of wells that will not be profitable at $70,” Ross added.