U.S. oil production continues to grow at a modest pace

The price of oil is increasing with no end in sight

With Brent oil now at more than $80 per barrel, the price of oil is increasing with no end in sight.

University of Houston's Energy Economist Ed Hirs said it appears the market is following sanctions placed on Iran by President Trump.

He said while Texas, and in particular the Permian Basin, is reaching new levels of production every day, the takeaway capacity in the Basin has yet to keep up.

"That's not in the interest of the producers in the Permian, either. The more they would produce, that the more the prices would drop and then, the less profits they would be able to take home," said Hirs.

He said the real challenge is that Saudis and Russians have not followed through on their publicly announced agreement to increase production and are instead have cut back on production. They benefit by having lower production, which keeps the price up. For a one percent increase in production of crude oil, there's a 25 percent decrease in price; and a one percent cut in supply results in a 25 percent increase in price.

Hirs refreshes our memories that when sanctions were released on Iran a few years ago, the oil price didn't move very much because the oil from Iran was already getting into the market.

He added that India will not cut imports on Iranian crude.

Hirs said the price of crude is governed by OPEC's behavior to ramp up or cut production.

"And, as this tightening of supply becomes more apparent across the market, the price will continue to go up," said Hirs.

He said we can't count on Texas to provide the increased production needed to lower prices.

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