Big Investors Are Ditching The Texas Oil Boom, But Why?

Tim Pearce | Energy Reporter

A group of investors are cutting ties with oil companies working in the Permian Basin over fears that the U.S. oil industry will over-produce itself into a slump, Reuters reported Friday.

Eight hedge funds have divested more than $400 million from oil companies operating primarily in Texas and New Mexico. The shareholders are worried the price of oil will plummet and ravage the industry if the industry doesn’t restrain its growth.

“We’ll have to see if these U.S. producers have the discipline to not go crazy and keep prices where they keep making money,” portfolio manager at Dallas-based investment firm Hodges Capital Management Gary Bradshaw told Reuters.

The price of oil has roughly doubled since mid-2016, in large part due to the Organization of Petroleum Exporting Countries and a few others oil exporters shrinking the supply of oil to raise the price, CNN Money reports.

OPEC announced in late May that the cap in production will remain in place until March 2018.

Outside of the agreement between OPEC members and several other countries, the U.S. oil industry has capitalized on the higher price with explosive growth, shocking market experts, according to Reuters.

The U.S. oil industry alone will account for a 750,000 barrel per day increase in production from countries outside of the cartels agreement.

The amount of oil rigs in the Permian Basin alone has risen by 40 percent in 2017. The hedge fund’s investment in the area, however, has declined by 14 percent from the fourth quarter of 2016 to the first quarter of 2017, $3.08 billion to $2.66 billion, Reuters reports.

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