Oil prices won’t spike for years – Exxon CEO

There is mounting evidence that oil prices are poised to rebound from a historic bust.

Rig counts hit new lows each week. For the week ending on April 17, Baker Hughes says the U.S. lost an additional 34 oil and gas rigs, bringing the total down to 954. Domestic crude oil production appears to have plateaued and the EIA expects a contraction in May.

Nearly every driller is dramatically scaling back spending, which should increasingly cut into new output. And oil consumption is finally picking up, as drivers far and wide take advantage of cheap fuel.

But what if the bust is not over yet? Despite the signs of a rebound, Exxon Mobil (XOM) CEO Rex Tillerson has a much more bearish take on oil prices. Speaking at the IHS CeraWeek conference in Houston, Tillerson predicted that oil prices would remain subdued for the next several years.

What’s ahead: While the longer-term is harder to predict, there is quite a bit of evidence to suggest that oil prices may not rise much higher than where they are right now in the short-term. For one, crude oil inventories continue to build.

Although the stock build has slowed in recent weeks, it is still dramatically higher than the five-year average. Until production slows to the point that consumers are drawing down inventories faster than they can be replaced, oil prices have little room to rise.

Another significant factor that could limit any further increases in oil prices is the enormous backlog of wells awaiting completion. Since most of the value of oil and gas coming out of shale occurs in the first few months of production, drillers are avoiding completing hundreds of wells because selling into the current low-price environment would earn them a lot less cash than if they wait until prices rise again.