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Expert: U.S. Energy Production More Resilient than OPEC Believes

Oil price predicted to be in $70-$75 per barrel range over the next few years.
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Oil producers in Texas and elsewhere may fare better than expected in the face of lower crude-oil prices.

Even though crude prices have dropped sharply, from more than $100 per barrel to just over $60, U.S. production is more resilient than the Organization of Petroleum Exporting Countries believes, Bruce Bullock, director of Southern Methodist University’s Maguire Energy Institute, said Wednesday.

Some contend that when OPEC left production levels unchanged last month, it was trying partly to squeeze U.S. shale oil production, which has boomed. However, “OPEC has vastly underrated the ability of the U.S. producer to adjust,” Bullock said.

In recent years, the energy industry has driven down “breakeven points” on fields by nearly 30 percent, and technology will continue to drive them down further, Bullock pointed out. As a result, he said, breakeven prices for producers in Texas’ Wolfcamp and Eagle Ford shale plays are in the $54 and $55 per barrel range, respectively.

Meantime Bud Weinstein, the energy institute’s associate director, said the pluses of $60 per barrel oil for the U.S. economy—lower prices for gasoline and home heating oil, for example—far outweigh the negatives. This is true even in Texas, where oil and gas now account for 15 percent of the gross state product, up from 5 percent a decade ago, Weinstein said.

Bullock predicted oil prices would settle in the $70 to $75 per barrel range over the next two or three years. He also said production should be “flat to up slightly in the short run, decline slightly in the mid term, and recover in the long run as demand recovers.”