More Bad News For Oil: U.S. Gulf Of Mexico Production To Reach Record Levels In 2017 As Demand Softens

Gary Bourgeault  Feb. 21, 2016 7:41 AM ET

Excerpt (link to full article follows)

http://seekingalpha.com/article/3914226-bad-news-oil-u-s-gulf-mexic...

Conclusion

Now that Gulf of Mexico oil will add almost 300,000 more barrels per day by the end of 2017, support for the price of oil looks dismal at best. Some have been hoping the numerous cuts in capex will helps solve the problem, but I think that will take much longer than believed at this time, primarily because the time it takes to bring these various wells into production was already figured into the strategic plans of the oil companies. Eventually it will have a significant impact, but it will be mostly further out rather than in the short term.

Re-balancing from market forces is also much further out because of the slowing global economy. Saudi Arabia had been counting on that as being a positive catalyst in the near term, but that hope is faded as the reality has set in that we are now in a period of a global economic slow down.

Coupled with slowing demand from major oil-consuming nations like the U.S. and China, oversupply will continue to weigh on the price of oil, which will drop further when the market prices in the increase in supply from the Gulf of Mexico.

Since I can't imagine Saudi Arabia agreeing to cut oil production, which would allow competitors to take away market share, there is nothing else I can see that can reverse the direction of the price of oil anytime soon. If storage becomes an issue, which it appears could happen over the next several months, that's the worst-case scenario where some believe the price of oil would drop below $20 per barrel. More oil from the Gulf does nothing to deter that potential outcome.