A sharp reduction in spending by oil producers points to a quick recovery for oil prices once the economic downturn begins to alleviate. Notably, cash-strapped producers have cut budgets faster and deeper than in past downturns. This lack of investment is already speeding up the rate of decline in older fields, and delaying the start of new production.
Service companies, such as Enterprise Oilfield Group, see a possible repeat of the last four years. During this period, oil prices rose to record levels as demand grew faster than new supplies, an imbalance that some believe was caused by a lack of investment during the previous downturn. With oil producers postponing and canceling major projects, history is very likely to repeat itself.
Francisco Blanch, head of global commodities research at Merrill Lynch, wrote, “The current WTI crude oil price weakness may be setting the stage for another rally in crude oil prices as the world emerges from the recession. Delayed and canceled projects on energy infrastructure will only add to the same supply bottlenecks that gave origin to the commodity super-cycle of the last seven years.”
Of course when the lack of available supply is obvious and oil prices resume their upward climb, oil producers will be competing against each other for the business of oil service companies. Enterprise Oilfield Group is perfectly positioned to take advantage of this anticipated demand. With a fleet of over 260 trucks and heavy-duty units, the company is able to offer a full array of services to multiple clients simultaneously.
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