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Do you know the Oil’s magic number?

Oil prices reflect supply and demand balances, with increasing prices often suggesting a need for greater supply. Producing greater supply, in turn, typically requires increased investment in exploration and production (E&P) activities.

Low oil prices, if sustained, could mark the beginning of a long-term drop in upstream oil and natural gas investment, according to the US Energy Information Administration’s.
 

The global oil industry slashed more than $100 billion in spending last year and is in the midst of further cuts this year to survive what Schlumberger Ltd. has called the industry’s worst-ever financial crisis. In North America alone, spending is expected to drop by half from last year.
 

The new magic number in the oil industry is $50.
 

BP Plc, rig-owner Nabors Industries Ltd. and explorer Pioneer Natural Resources Co. all said in the past 24 hours that prices above $50 will encourage more drilling or provide the needed boost to cash flow. With oil bouncing close to $45 a barrel, an industry that has been shaving costs to stay competitive is ready for signs of stability at a price level less than half of 2014’s average.
 

At an average price of $53 per barrel of oil means the world’s 50 biggest publicly traded companies in the industry can stop bleeding cash, according to oilfield consultant Wood Mackenzie Ltd. Nabors said it has already been talking with several large customers about plans to boost work in the second half of the year if prices rise "comfortably" above $50.
 

For every $5 that oil prices climb, above a baseline of $37, Continental Resources Inc. adds another roughly $200 million in revenue, Chief Operating Officer Jack Stark explained: by the time oil prices reach $52, the Oklahoma City-based explorer would probably look at adding more rigs,
 

Since January 20, the barrel’s price has increased from $27.88 to $48.14 in April 29. The trend line is up, but it will depends on many factors: like the oil demand growth, the reduction in the non-OPEC coutries offer, and the Middle East oil production.
 

Source: http://www.bloomberg.com/