In the past, oil and gas drillers in the United States would invariably activate every dormant drilling rig they could locate and rent whenever commodity prices rose substantially. They would not only activate the rigs, but they would ramp up drilling budgets until they inevitably drilled so many wells that the resulting supply response overwhelmed global demand and crashed prices to lower levels than when the boom began.
One of my good friends had a saying for this highly predictable phenomenon: “You can always rely on the industry to drill itself out of prosperity,” he would say. He retired a few years ago, but if he were still active, he would have to modify his dictum now to conform it to today’s new reality. Because it seems we can’t rely on the industry to do this to itself these days.
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