Oil production is on rise

04/24/2010 12:00 AM

04/24/2010 1:09 AM

Conditions are just right in the oil patch. The price of oil is up, but not so much that politicians are grandstanding and people switching to smaller cars.

At the same time, costs remain relatively low.

The resulting strong profits are driving an increase in production and more drilling, say local oil company executives.

"We're very comfortable with the oil prices at these levels," said Kevin Davis, owner of Red Oak Energy, a geologist and operator of a number of wells.

"It's important to stay below $100 and stay out of the cross hairs."

Some experts say prices will have to fall in the near future, given a recent increase in production and the continued sluggish recovery in the U.S. and Europe.

Consumption by developed countries is down 8 percent from its 2006 high, at the same time oil-producing countries have been ramping up production.

Supply and demand dictate that prices should fall — but they aren't.

Benchmark oil prices rose above $84 on Friday, helped slightly by strong sales of new homes that surged last month from a record low in February, which is a key sign of further economic recovery.

"There's no real reason for oil to be more than $60 a barrel, but the markets have been dominated by speculators for the last four or five years," said Jim Williams, an oil market analyst with WTRG Economics.

Barring a major catastrophe, war or a global economic boom, Williams expects oil to remain between $70 and $90 a barrel because Saudi Arabia wants it that way.

If it threatens to go too high and hurt the world economy, the Saudis will raise production. If it goes too low, they'll cut production.

That could be great news for local oilmen, who have no control over oil prices.

Price increases are driving more production and more exploration in Kansas.

The number of new drilling rigs in Kansas is up from last year, said Ed Cross, president of Kansas Independent Oil and Gas Association.

Production figures for 2010 aren't available for Kansas, but several oil companies said they're happy to keep pumping at today's prices.

Kansas Common on Friday was about $73.50 a barrel.

Producers respond to prices. Production in Kansas rose 8 percent in 2008 when prices hit $134 per barrel and crashed 9 percent in 2009 when prices plunged below $30 a barrel.

Dick Schremmer, president of Bear Petroleum in Haysville, said his oil services company is busy. And when he calls for help from other service companies, they tell him they're too busy.

"That tells me things are going pretty well," he said.

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