West Texas Intermediate, the benchmark U.S. contract, tumbled 21 percent since June 10 to $48.45 a barrel, erasing more than $100 billion in market value from the companies in the Bloomberg Intelligence North America Independent Explorers and Producers Index.
Even Saudi Arabia’s oil minister Ali al-Naimi said that while he expects the price of oil will stabilize “eventually,” OPEC is no longer assuming $100 per barrel in any of its medium-term forecasts.
But just as the supply and demand imbalance is unsustainable, so too is the current low price of oil, says Ross, who correctly predicted last summer that oil prices were in for a precipitous drop. “Current prices are unsustainable,” Ross told Bloomberg. “It’s hard not to see oil hitting $100 a barrel at some point in the next five years.”
The shale revolution has unlocked tremendous natural resource potential in the United States and Canada, with other countries trying to take advantage of shale gas and tight oil. As recently as last year, only four countries in the world were producing commercial volumes of either shale gas or tight oil, reports the Energy Information Administration (EIA). For the last two years, China has drilled more than 200 wells, and Argentina has drilled more than 275 wells. Each country has the potential to significantly increase production of shale gas and tight oil, according to the EIA.
According to the EIA, recent developments indicate that China is on schedule to produce some 17 million cubic meters per day by the end of this year. By comparison, current U.S. production is roughly 1.3 billion cubic meters per day. Canada, the second-largest shale gas producer, produced roughly 113 million cubic meters per day last year.
Mexico has begun to produce a very small amount of the gas, and Poland, Algeria, Australia, Colombia, and Russia are all exploring the potential for developing oil and gas resources from their own shale formations. But according to the EIA, the “logistics and infrastructure” necessary to support production at the level seen in the United States does not yet exist in other countries besides Canada and China.