Why The World Is Still Pumping So Much Oil Even As Demand Drops Away | WOSU News
But why is that oil still flowing, anyway? Why don't producersturn off the spigotwhen demand falls?
The short answer is that production isdecreasing — just not fast enough.
As long as prices are greater than zero (an unusual disclaimer for these unusual times), a well will still bring in somemoney. And oil companies have fixed costs they have to cover. Even if they're taking a loss overall, it may be better to keep a well running than to bring in no money.
And as the glut grows so intense that tanks, pipelines and ships run out of space, companies may be forced to shut in some wells that they would liketo keep running, simply because there is nowhere they can immediately store their oil.
Drilling a new well is expensive. Last month, the Dallas Fed Energy Survey reported that on average, U.S. firms need oil prices to be at least $49 per barrelto profitably drill a new well. The U.S. benchmark oil price is currently at less than $14 a barrel.