Rice experts available to discuss crude oil storage space and gas prices

Rice University
Office of Public Affairs/News and Media Relations

EXPERT ALERT

David Ruth
713-348-6327
david@rice.edu

Amy McCaig
713-348-6777
amym@rice.edu

Rice experts available to discuss crude oil storage space and gas prices

HOUSTON – (March 4, 2015) – A recent news report warns that the U.S. has so much crude oil that it is running out of places to store it, a development that could drive oil and gas prices even lower in coming months. Rice University energy experts Bill Arnold, Kenneth Medlock and Jim Krane are available to discuss what this means for the U.S energy industry.

Bill Arnold, a professor in the practice of energy management at Rice’s Jones Graduate School of Business, said that companies continue to produce even at current low prices for a variety of reasons. 

“Those with low cost structures can produce economically even at these prices, but that doesn’t apply to all producers,” he said. “Companies have dramatically different portfolios and may have huge sunk costs, especially in the deep-water or remote regions. And the costs of shut-in are significant.”

Arnold noted that tremendous strides in technology enable companies to produce volumes with less drilling activity, so the drop in rig count doesn’t necessarily tell the whole story.

“Companies may have to forfeit leases for which they paid substantial sums if they do not produce, so they may even produce at an operating loss to hold the leases until oil prices improve,” he said.

Arnold said that many companies will continue to operate at low margins or even at a loss, as long as their cash flows allow it, in hope that competitors will drop out.

“It’s a high-stakes game of chicken,” he said. “Companies may genuinely believe that prices will recover within a reasonable time horizon.”

Arnold noted that much of the attention on oil prices has been about total global levels of supply and demand. He said that the relatively rapid growth in U.S. production along with weaker global demand has put markets out of balance and led to the decline in prices. Arnold’s bio is available at http://business.rice.edu/Bill_Arnold/.

Kenneth Medlock, senior director of the Center for Energy Studies at Rice University’s Baker Institute for Public Policy, noted that any price collapse due to the current inventory situation in the U.S. will be in the domestic crude oil price, not the international crude price. Because the international crude oil price drives gasoline prices in the U.S. and abroad, there is no benefit to U.S. consumers since it won’t impact the price at the pump. 

“The current market situation highlights another reason why an ability to export crude oil would benefit the U.S. economy,” Medlock said. “The current inventory situation that is driving weakness in the U.S. crude oil price could be alleviated without raising U.S. gasoline prices.”

Medlock’s bio is available at http://bakerinstitute.org/experts/kenneth-b-medlock-iii/.

Jim Krane, the Wallace S. Wilson Fellow for Energy Studies at the Baker Institute, is also available for comment. He specializes in energy geopolitics. His bio is available at http://bakerinstitute.org/experts/jim-krane.

Rice University has a VideoLink ReadyCam TV interview studio. ReadyCam is capable of transmitting broadcast-quality standard-definition and high-definition video directly to all news media organizations around the world 24/7.

For more information or to schedule an interview, contact Amy McCaig, senior media relations specialist at Rice, at 713-348-6777 or amym@rice.edu.

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