By Mitch Borden
West Texas oil producers have been doing pretty well this year. After weathering a severe drop in prices at the end of 2018, the price of oil recovered in a matter of months, but according to a new report, in four years the price could take another dramatic fall.
The energy and business advisory firm Opportune released a market analysis stating by 2023, the Permian Basin could see the price of a barrel of oil drop to $20 or below — which is far under the current price producers need oil to be at to breakeven.
Ryan Dusek is a director at Opportune and wrote the report. The primary focus of his work is helping companies prepare for worse case scenarios.
He said, “[If] prices go below your break-even you’re just not going to be able to operate very long. For any extended period of time that’s traumatic for the company.”
According to the Dallas Federal Reserve Bank, the cost of producing oil ranges, but in West Texas companies need the price of a barrel to be around $50 to breakeven.
The reason Dusek believes the oil market is headed towards falling oil prices is, he said, it’s likely the United State’s economy will slow down in the next few years. On top of that, he expects China to decrease the amount of oil it imports. This drop in demand, along with other factors, will most likely cause oil prices to plunge.
Over the last decade, the price of oil in West Texas has crashed a couple of times. Dusek said, the market always rebounded — but it’s been coming back weaker.
“Each time we’ve seen lower highs and lower lows. For me, that’s a trending downturn in the market. So right now, I have no reason to think anything should be different [in the future.]”
Dusek believes major oil companies in the Permian Basin, like Exxon Mobil and Chevron, will be able to manage if oil prices crash. It’s the smaller regional producers he thinks need to start taking precautions to prepare for the next large drop in oil prices.