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Why the price of oil isn't going up any time soon

Three independent oil companies have announced big capital expenditure cuts recently. So that means the oil boom in America is over and oil prices will go back up, right?

Think again, said Jim Cramer. The glut in oil cannot possibly be cleared up, especially when you look at the production figures slated for 2015.

On Wednesday, both Concho and Sanchez announced dramatic reductions to their capital expenditure budgets. Concho had planned for $3 billion and knocked it down to $2 billion. Likewise, Sanchez slashed its budget to $400 million-$450 million from $1.15 billion.

But here's the kicker: Concho is still planning on boosting production 20 percent from 16 percent. Sanchez is looking for 40 percent production growth in 2015.

"So let me ask you—how the heck can the price of oil go up if you cut your capital expenditures, pare back your drilling, and yet still tack on huge production increases?" Cramer asked, rhetorically.





Oil
Lucy Nicholson | Reuters

How the heck are they going to increase production on a lower budget?

Cramer can tell that the companies are pulling their rigs and relocating them to lower cost properties. Locations with costs so low, that they still turn a profit. So the trick isn't about reduction of drilling, it's about drilling cheaper.

In the offshore world, both Chevron and Hess are beginning to see the fruits of its labor on gigantic offshore wells. Including the Tubular Bells field that has just started pumping oil.

"We can take out a ton of on-shore production, but these high quality offshore wells will make up for it. In other words, 2015 is shaping up to be a huge year for oil production in this country, bigger even than 2014," Cramer said.

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With all of these factors combined, Cramer thinks that we just cannot be bullish on oil in 2015. Even if the demand were to return, the production is increasing at such an alarming rate that there is just too much black gold sloshing around.

In order for the price of oil to start climbing again, the supply must be reduced. And as the oil companies on and offshore pump their hearts out in 2015, that's just not in the cards to happen.

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