Cha Ching, Time To Explore

Not surprisingly, oil prices cracked $34/barrel this morning. Also not surprisingly, Marathon Oil has announced that it will increase its exploration efforts in the upcoming year.

This increase in capital investment in exploration is the logical outcome of a period of sustained high oil prices; high prices encourage either existing firms to increase their capacity or new firms to enter the industry. Given that entering the oil production industry is pretty darn costly, and a big commitment in a volatile industry, existing firms will benefit from increased exploration and increasing their production capacity.

And consumers benefit too, through lower prices as supply increases.