The Oil Down-Cycle: Lessons from the Past
US oil prices would need to overshoot the levels supported by prevailing supply and demand conditions to prompt producers to idle rigs and reduce capital expenditures dramatically. Weak balance sheets and higher-cost asset bases will compel some operators to scale back.
This supply response in the US and elsewhere will signal that we’re near the bottom of the commodity cycle. The question investors must ask isn’t whether this will happen, but rather how long this process will take to occur.
