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Oil Prices Reach a 2015 High as Crude Oil Inventory Drops By 3.9m Barrels

The lowering oil and gas prices over the last ten months posed several challenges to the oil and gas industry such as squeeze profit margins and diminishing drilling activities. However, the US oil inventories dropped over the last week for the first time in 2015. As a result, the oil prices increased to over $60 per barrel on Wednesday 6th May, 2015 for the first time in the current year.

The oversupplied oil market and decreased profit margins lead to thousands of layoffs in the oil and gas companies as well as cheap gasoline prices. Recent increase in the oil prices has raised the possibility that the low-profit-environment of the oil and gas industry might be coming to an end.

According to the Department of Energy, the US crude oil inventories have dropped by 3.9million barrels over the last week. America’s largest oil storage facility in Cushing, Oklahoma has seen a drop in its oil inventory over the last two weeks. The oil exploration companies have decreased their drilling activity in order to survive in an oversupplied oil market.

There is still no clear evidence over whether the US crude oil production and inventory will keep dropping and lead to an elevated WTI benchmark. The price of WTI has increased to $61.32 per barrel, which is 40 percent more as compared to March 2015. However, it is still far less than the WTI price of
$107.52 per barrel of summer 2014.

The oil prices have a huge impact on the country’s economy. According to the American Automobile Association, the increasing oil prices have mounted the gasoline prices by 23 cents over the past three weeks. Low oil prices are particularly bad for states that rely on oil taxes for revenue. The oil and gas companies have done some major layoffs since the oil prices crashed down. The drilling activity has significantly reduced with about half as many drilling rigs working today as there were at the end of 2014.

US oil prices have now started to rise as a result of a drop in crude oil production. An analyst from the Prices Futures Group thinks that the oil prices might increase to $80 per barrel by the end of 2015. The oil demand in China and Europe has also increased unexpectedly.

Another energy economist and consultant, Phillip Verleger, feels that the oil prices rebound would not last for a long time. The increasing oil prices will tempt the oil and gas companies to increase their production again and frack a lot of wells, which may cause the oil prices to come back down.

The global oil giant Saudi Arabia is also increasing its oil production in order to maintain its top spot among the oil producing companies of the world, which will provide more oil in an already oversupplied market and keep the prices from rising too much.

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