The World Petroleum Congress in Istanbul this week looks to have been a morose place to be, with industry leaders predicting another three years of low oil prices and companies “still focused on repairing battered finances and resetting their operations to withstand low prices,” Bloomberg reports.
“It could easily take until the end of the decade for better times to return to an industry that’s already endured a longer slump than most people expected,” the news agency notes, citing Total SA CEO Patrick Pouyanne and Weatherford International head Mark McCollom.
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The cautious tone was “an enormous turnaround from the last World Petroleum Congress in Moscow in 2014, when people were speculating oil could rise as high as US$125 after the precursor to Islamic State seized parts of northern Iraq,” Bloomberg notes. “Three years on, Iraq has driven the Islamist extremists out of the city of Mosul, but the U.S. shale industry that triggered the slump to below $30 has survived and thrived. Even as OPEC curbs production, banks including Goldman Sachs Group Inc. and BNP Paribas SA are cutting their price forecasts for the years ahead.”
“As companies, we have to remain very disciplined about spending and not assume that the price will go up,” BP CEO Bob Dudley told participants. “The years of $100 oil will turn out to be an aberration. We used to make money at $40 oil, we used to make money at $25 oil.”
In a release yesterday, the U.S. Energy Information Administration predicted that benchmark Brent and West Texas Intermediate (WTI) crude oil prices would average around $50 per barrel through the end of next year. A few days earlier, Reuters spotted crude prices rising to $44.40 for WTI and $46.88 for Brent. But those prices still represented a 17% drop from the beginning of the year, and the news agency pointed to “increased drilling activity in the United States and uncertainty over Libyan and Nigerian production cuts” as factors that “clouded the future supply outlook.”
Earlier this year, fossils were pinning much of their hope for a price recovery on a deal by the Organization of Petroleum Exporting Countries (OPEC) to limit oil production. But that agreement had only a limited, very short-term impact. And this week, OPEC said its oil production had increased in June in tandem with its competitors elsewhere, while predicting that world crude oil demand will drop next year. Last week, Bloomberg Markets analyst Grant Smith warned that time is running out for the once-invincible cartel to make good on its promise to bring prices closer to what the global fossil industry would like to see.
“OPEC’s best chance to make a big dent in the lingering glut in the U.S., and with it reverse oil’s three-year slump, lies in the remaining weeks of peak summertime demand,” he wrote. “That’s already become harder because of the resurgence in output from OPEC members exempt from cuts, while there are no signs yet that Saudi Arabia, the group’s de facto leader, is willing to cut as deeply as it did earlier in the year.”
“Saudi Arabia has gone quiet on the solution of ‘whatever it takes’ to force the market into rebalancing,” Petromatrix GmbH Managing Director Olivier Jakob told Smith.
While Saudi Aramco CEO Amin Nasser told Istanbul participants he was confident that stalled exploration and new discoveries will produce an oil supply shortage before much longer, hedge fund managers are losing confidence and abandoning the industry, Bloomberg noted. “Sentiment still seems extremely bearish,” Citigroup Global Markets analyst Tim Evans said last week. “We’re responding to every bit of bearish news, but we’re ignoring or seeing a limited reaction to any bullish news.”
In late June, meanwhile, the news agency noted that the 90 colossal fossils that make up the MSCI World Energy Sector Index had lost $115 billion in market value since April 1. “Oil companies have spent three years slashing spending and firing workers to protect profits, only to find their hard work blown away as prices entered another bear market,” Bloomberg noted.
“The biggest companies are improving a lot operationally,” said analyst Iain Armstrong of Brewin Dolphin Ltd. “But the oil price will continue to drive the shares,” leading to unhappy prospects for investors—including companies like Brewin Dolphin itself.
The trend is hitting Canadian fossils just as hard, CBC News reported this week. “Today if you took a look at a typical oil and gas company share price, it is lower than it was in July 2016, and it is also lower than it was when oil was $36 a barrel,” said GMP FirstEnergy Co-Chair Jim Davidson.
Barry Schwartz, chief investment officer with Baskin Financial, said that might be because fossils don’t see it as their job to hang back and wait for getter prices. “The price of oil is down here for a reason, and the reason is that everyone is drilling like crazy,” he told CBC. “If you’re in the oil business, you’re in the business to drill for oil, you’re not in the business to shut down wells and wait for better prices. Maybe this is the fair value for oil?”
