Surviving the oil slump
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Goldman Sachs has stood by its ultra-bearish forecast in the wake of Opec's latest meeting
Oil companies and countries dependent on revenues from 'black gold' might be forgiven for thinking that things cannot get much worse. Goldman Sachs, however, believes that they can.
Analysts at the US investment banking giant issued a note on Thursday in which they stood by the ultra-bearish forecast for global oil prices to slump to $20 a barrel next year, before recovering in any meaningful way, says CNBC. Here are four arguments supporting the case for another major drop:
Stockpiles just keep rising
Yesterday another report revealed that oil reserves were rising in the US – a bearish indicator for the ongoing global supply glut. The Wall Street Journal cites an estimate from data provider Genscape that stockpiles at the Cushing, Oklahoma depository, which acts as the delivery point for US benchmark West Texas Intermediate futures contracts, rose by 1.4 million barrels last week.
The rise mostly took place in the second half of the week and followed the US energy watchdog's report of a surprise surge of 4.8 million barrels in overall domestic crude oil reserves last week. In response, WTI fell to a six-year low of below $35 a barrel and international counterpart Brent crude fell close to one per cent to a new seven-year low of a fraction above $37.
Production is not falling enough
It is one of the enigmas that has confounded analysts: why production has remained resilient despite the painful fall in the oil price. US shale in particular, which is thought to be more expensive than much of the rest of global production, has fallen from its peak output of 9.6 million barrels a day but is still above nine millions barrels and has been edging higher of late.
Goldman Sachs says that with Opec already pumping 1.5 million barrels a day above a 30 million barrel production 'ceiling' – and having now abandoned any targets for production after its latest meeting ended in acrimony – there is simply not enough of a decline being signalled elsewhere to rebalance the market.
Fed rates rise will hit demand
Demand is also a key factor in the supply equation and, again, it has been disappointing. Efficiencies in fuel use, warmer weather caused by the El Nino phenomenon and a new drive to reduce fossil fuel burning to protect against climate change are all preventing drawdowns surging to meet or exceed supply.
The decision by the Federal Reserve this week could exacerbate this issue, traders fear. Lower oil prices were starting to filter through into greater fuel purchases, but if the dollar rises strongly on the back of the rates increase this will hold prices higher for overseas buyers and could undermine that trend.
Budget deal is bad news for Brent
For the international benchmark, Brent, there was further bad news this week in the form of a new budget deal in the US congress that controversially saw the Democrats cave in to Republican demands to remove a ban on domestic oil exports. The protectionist measure has meant that international oil is bought at a premium to the US benchmark and could see more oil flood onto the global market.
The net result of this could be that the 'spread' between the two prices shrinks – most likely through a fall in the relative premium paid for Brent. At some point this week the spread fell to less than $2 and some industry analysts reckon that over time the two prices may even reach parity.
Any rises being predictee
Plenty, in fact the consensus view probably still remains for oil to enjoy higher average prices in 2016 than this year. But these forecasts are falling every time they are republished and many experts are now predicting a near-time fall lower – perhaps to around $30 a barrel – before a volatile recovery pushes prices to within a wide $40-$60
Goldman Sachs has stood by its ultra-bearish forecast in the wake of Opec's latest meeting
Oil companies and countries dependent on revenues from 'black gold' might be forgiven for thinking that things cannot get much worse. Goldman Sachs, however, believes that they can.
Analysts at the US investment banking giant issued a note on Thursday in which they stood by the ultra-bearish forecast for global oil prices to slump to $20 a barrel next year, before recovering in any meaningful way, says CNBC. Here are four arguments supporting the case for another major drop:
Stockpiles just keep rising
Yesterday another report revealed that oil reserves were rising in the US – a bearish indicator for the ongoing global supply glut. The Wall Street Journal cites an estimate from data provider Genscape that stockpiles at the Cushing, Oklahoma depository, which acts as the delivery point for US benchmark West Texas Intermediate futures contracts, rose by 1.4 million barrels last week.
The rise mostly took place in the second half of the week and followed the US energy watchdog's report of a surprise surge of 4.8 million barrels in overall domestic crude oil reserves last week. In response, WTI fell to a six-year low of below $35 a barrel and international counterpart Brent crude fell close to one per cent to a new seven-year low of a fraction above $37.
Production is not falling enough
It is one of the enigmas that has confounded analysts: why production has remained resilient despite the painful fall in the oil price. US shale in particular, which is thought to be more expensive than much of the rest of global production, has fallen from its peak output of 9.6 million barrels a day but is still above nine millions barrels and has been edging higher of late.
Goldman Sachs says that with Opec already pumping 1.5 million barrels a day above a 30 million barrel production 'ceiling' – and having now abandoned any targets for production after its latest meeting ended in acrimony – there is simply not enough of a decline being signalled elsewhere to rebalance the market.
Fed rates rise will hit demand
Demand is also a key factor in the supply equation and, again, it has been disappointing. Efficiencies in fuel use, warmer weather caused by the El Nino phenomenon and a new drive to reduce fossil fuel burning to protect against climate change are all preventing drawdowns surging to meet or exceed supply.
The decision by the Federal Reserve this week could exacerbate this issue, traders fear. Lower oil prices were starting to filter through into greater fuel purchases, but if the dollar rises strongly on the back of the rates increase this will hold prices higher for overseas buyers and could undermine that trend.
Budget deal is bad news for Brent
For the international benchmark, Brent, there was further bad news this week in the form of a new budget deal in the US congress that controversially saw the Democrats cave in to Republican demands to remove a ban on domestic oil exports. The protectionist measure has meant that international oil is bought at a premium to the US benchmark and could see more oil flood onto the global market.
The net result of this could be that the 'spread' between the two prices shrinks – most likely through a fall in the relative premium paid for Brent. At some point this week the spread fell to less than $2 and some industry analysts reckon that over time the two prices may even reach parity.
Any rises being predictee
Plenty, in fact the consensus view probably still remains for oil to enjoy higher average prices in 2016 than this year. But these forecasts are falling every time they are republished and many experts are now predicting a near-time fall lower – perhaps to around $30 a barrel – before a volatile recovery pushes prices to within a wide $40-$60
Saudi budget is being blown apart by this desperation to burn the US shale producers. Not sure how long they can maintain it internally politically. They are having to raise/ levy TAXES (!) in the KSA to try and recover some of the deficit. They are running out of cash reserves. I think the KSA needs to make peace that shale exists and the USA is now a net exporter end close the taps a bit. Their strategy isn't working for them, let alone the rest of us!
The Saudi's are trying to do two things at once; undercut the US shale gas industry and maintain regional dominance to counter Iran as it moves back in from the cold. As usual, they are doing both badly........
They have huge reserves, but taxation won't go down well in a country where it is unheard of and everything is subsidised; added to which the regime is already unpopular. Unfortunately, as the Saudi's reach the point where they realise the main victims of this strategy are themselves, Iran's surplus will have entered the market and they will be pushing to boost output.
No relief just yet - I have seen those figures from Goldmans et al; all seem to predict $20-30 a barrel in the short-medium term, but for a limited period and as a precursor to a much needed price hike.
They have huge reserves, but taxation won't go down well in a country where it is unheard of and everything is subsidised; added to which the regime is already unpopular. Unfortunately, as the Saudi's reach the point where they realise the main victims of this strategy are themselves, Iran's surplus will have entered the market and they will be pushing to boost output.
No relief just yet - I have seen those figures from Goldmans et al; all seem to predict $20-30 a barrel in the short-medium term, but for a limited period and as a precursor to a much needed price hike.
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Anyway, that wouldn't surprise me if Blueway were operating the way I was told. Even Airbus Helicopters were concerned with that and the lack of experience on the 225.
So anyone sat wondering when their steed of choice will be put into 'care and maintenance'?
What affect will $20/barrel have on the long/medium-range logistics?
Accept that the speculative, longer-range, exploration flights were first to be affected but can't see many companies surviving on $20/barrel - then it does not really matter how diverse their portfolio.
Does it matter more if you are a 92/225 pilot or a 175/139/189 jockey?
Will the SNS be less affected than NS, CNS?
Not interested in opinions from the O&G consultants who have published 'forecasts' woefully off the mark to date, and make a living from publishing such, but the pilots/engineers who will be directly affected and any snippets they have picked-up. It is a rumour network!
Will be keen to know if the industry is prepared for what will happen at 20/barrel and what plans are in process or have already been actioned.
From one who didn't see it coming!
What affect will $20/barrel have on the long/medium-range logistics?
Accept that the speculative, longer-range, exploration flights were first to be affected but can't see many companies surviving on $20/barrel - then it does not really matter how diverse their portfolio.
Does it matter more if you are a 92/225 pilot or a 175/139/189 jockey?
Will the SNS be less affected than NS, CNS?
Not interested in opinions from the O&G consultants who have published 'forecasts' woefully off the mark to date, and make a living from publishing such, but the pilots/engineers who will be directly affected and any snippets they have picked-up. It is a rumour network!
Will be keen to know if the industry is prepared for what will happen at 20/barrel and what plans are in process or have already been actioned.
From one who didn't see it coming!
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all I know is that it is for all practical purposes its impossible to get a job right now flying for O&G, it doesn't matter whether you have 20,000 hours and a bunch of current types, feels like there are 10 unemployed oil and gas pilots on every street corner, so if you have a job right now for the love of god don't resign!!!
And yet, in the middle of all of this, unionized labour means costs for operators are increasing. Unionized Pilot and AME costs in Northern Europe and the USA are the primary reason why lower cost operators like Inaer, NHV etc (and others from outside of Europe completely) are wiping the floor with CHC and BRS at the moment.
A pay rise when oil price is down 70%?!
Why an operator would ever voluntarily unionize the workforce I have no idea.
A pay rise when oil price is down 70%?!
Why an operator would ever voluntarily unionize the workforce I have no idea.
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BP has just announced about 600 job cuts in the North Sea and up to 4,000 globally, with Morgan Stanley forecasting an oil price drop to $20 a barrel and RBS forecasting it could fall as low as $10. Not good news for the offshore oil industry and those employed in support companies I'm afraid
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And the Swedish government is fully funding the training of 30 CPL(h) per year in order to counter the lack of helicopter pilots, that is so severe that it is of national concern (apparently)...
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So the question is ..... was the last 20 years of oil company aviation units demanding standardisation, globalisation, safety target zeros worth the heavy investment by the major operators or not?
Would we not have been able to input changes under the guise of SMS demands from the authorities with less priority and cost? Has your safety department taken a hit yet? Where will the oil company aviation savings be made besides the obvious line engineers and pilots?
And in two or three years, whenever, will those with the cheaper costs, higher wages, newer aircraft types be better able to man the chaotic rush to support new ventures!!! Will it be those that meekly bowed to their earlier whims?!!
Strength thru gloom chaps and chappesses!
Would we not have been able to input changes under the guise of SMS demands from the authorities with less priority and cost? Has your safety department taken a hit yet? Where will the oil company aviation savings be made besides the obvious line engineers and pilots?
And in two or three years, whenever, will those with the cheaper costs, higher wages, newer aircraft types be better able to man the chaotic rush to support new ventures!!! Will it be those that meekly bowed to their earlier whims?!!
Strength thru gloom chaps and chappesses!
North Sea Oil
My question is, how low can the price of oil go before north sea operations are no longer economical??
Coal mining recently stopped in the UK even tho coal reserves are still available because it is simply cheaper to import than mine in the UK.
Coal mining recently stopped in the UK even tho coal reserves are still available because it is simply cheaper to import than mine in the UK.
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Production costs are around 7-9$ in NS, depending also on how old the installations are. The older the cheaper. More expensive in Norway, due to "the norwegian model". But production will NOT stop, even though the production is no longer economical, then taxation will just be lowered, to keep the installations running. It is a national security Q, for the UK, Netherlands, Denmark and Norway, etc. They will not leave energy supply in the hands of the Sauds 
Found in my LI flow just this morning. Snappy little graph which shows production costs. I think some of the numbers being quoted here on the forum are not accurate. NS is a VERY expensive place to produce energy. There is a marked difference between on and offshore as well. offshore is always hugely expensive even if the fields are bigger.
Sale of the century? | The Economist
The key is that anyone in theory could close the taps a bit but it's the impact of that country. The UK closing the taps (for economic or political reasons) will not make the blindest bit of difference to the oil price as we are not big enough. Saudi/ Russia/ Iran/ a.n. other will just open the taps a bit more and take our market share. That's why OPEC is still so important, when 40% of the market make a decision together, that is a significant impact.
Sale of the century? | The Economist
The key is that anyone in theory could close the taps a bit but it's the impact of that country. The UK closing the taps (for economic or political reasons) will not make the blindest bit of difference to the oil price as we are not big enough. Saudi/ Russia/ Iran/ a.n. other will just open the taps a bit more and take our market share. That's why OPEC is still so important, when 40% of the market make a decision together, that is a significant impact.
Quote:
Production costs are around 7-9$ in NS
Pahahahahahaha good one
What utter drivel
Production costs are around 7-9$ in NS
Pahahahahahaha good one
What utter drivel