Page 50 - Oil&Gas-AustralAsia-2015-Issue-4
P. 50
W ORLD NEWS
How low can you go?
By Nazery KHALID
dispose of non-core assets, rationalize vestments and activities, and where lies
Nazery Khalid urges their businesses, and re-assign employ- the business opportunities for support
support service providers ees in areas which contribute to the service providers.
to seek silver lining amid bottom line of the companies, and even There are many differing views about
the low oil price trim down their workforce. why oil prices are low and where they
environment are trending in the foreseeable future.
Scraping the bottom of the barrel However, the views are threaded by one
The low oil price has wreaked havoc common consensus – that oil prices
to the oil industry, causing oil majors Bearing the most brunt of the rather are way below their fundamental value.
and national oil companies (NOCs) unexpected low prices situation in the Some analysts even suggest prices are
to reduce capital expenditure, halt oil industry is the shale oil players in not fairly reflective of the demand-sup-
exploration activities and scale back the US. The excitement of the prospect ply situation; in other words, they are
production. of the US becoming the world’s largest artificially deflated.
Oil prices are currently languishing exporter of oil has thus far not materi- There appear to be several factors which
in the US$40-plus region – more than alized. US shale oil producers have had have caused prices to be where they are.
half of the heady prices over US$100 to shelve production as it would not be Among some of the notable ones are :
per barrel seen a year ago. In this profitable to extract oil in the current • The lifting of sanction on Iran result-
weak price environment, oil compa- environment as oil prices scrape the ing the possibility of more oil being
nies do not find it economically viable bottom of the barrel. available in the global markets
to extract oil from ‘expensive sources’ Strangely, oil prices are languishing at • OPEC members – especially Saudi
such as deepwater, ultra-deepwater and a time when technologies to explore Arabia - continue to pumping oil to
marginal fields through enhanced oil and extract oil have never been more maintain market share and deny US
recovery. impressive, global demand has never shale oil producers to challenge their
The oil companies have scaled back been higher, prolific new fields continue dominance
investments on new ventures, delayed to be discovered and the fundamentals • Strengthening US Dollar against ma-
committed projects and trimmed exist- of the oil industry are rock-solid. jor currencies
ing ones at an almost unprecedented scale. To the uninitiated, it must be infuriat- • Fears over the health of China’s econ-
In the past one year, the business ing to try to figure out why oil prices omy which has been propping up the
pages have seen a spate of news of such are languishing at low levels amid all world economic growth in the last two
exercises. Among the more prominent these positive indications. Even profes- decades or so
names in the oil industry which have sional analysts and seasoned industry • The spectre of ‘production surge’ from
announced job cuts and ‘rationalization watchers who thought the oil prices had the full-scale take-off of US shale oil
exercises’ include oil majors like Chev- headed as farthest south as they could production
ron, ExxonMobil and Shell and NOCs go continued to be baffled by further The near 10 percent single day hike
like Malaysia’s Petronas and Brazil’s erosion of prices and the continued of Brent crude oil, the international
Petrobras which have trimmed down testing of lower levels of prices. bellwether index for global oil price, in
contract workers. It is not the objective of this article to August 2015 underscores the unpre-
This has triggered a chain of adverse unravel the reasons why oil prices are as dictable nature of the industry. It
multiplier effects across the oil indus- low as they are now despite the reason- also highlights the lack of consensus
try supply system, with vendors and ably strong fundamentals. The article among market analysts and industry
contractors bearing the brunt of the focuses more on the highlighting the practitioners as to why oil prices are de-
slowdown of the industry. Compa- opportunities available in the industry pressed and where prices are trending.
nies providing support services such amid the current industry landscape It is anybody’s guess where oil prices
as offshore support vessel (OSV) and scenario and likely scenario of weak oil will head in the foreseeable future. The
fabrication have also announced the prices in the coming years. common narrative is that oil prices
trimming down of employees in line However, a bit of perspective of why oil may trend further downwards as Saudi
with slowing down of requirements of prices remain weak is in order before Arabia – the world’s largest exporter
OSVs and offshore structures. the article explores the positive aspect of crude oil – continues to flood the
This has come hot off the heels of an- of the current situation. It provides market with ‘cheap oil’ to protect its
nouncements by companies looking to basis towards developing an under- dominance. Goldman Sachs even bold-
standing what the focus of oil majors ly pondered the possibility of oil
and NOCs are as they scale back in-
A A44 OIL & GAS ustral SIA SEPTEMBER/OCTOBER 2015 www.oilandgasaustralasia.com
How low can you go?
By Nazery KHALID
dispose of non-core assets, rationalize vestments and activities, and where lies
Nazery Khalid urges their businesses, and re-assign employ- the business opportunities for support
support service providers ees in areas which contribute to the service providers.
to seek silver lining amid bottom line of the companies, and even There are many differing views about
the low oil price trim down their workforce. why oil prices are low and where they
environment are trending in the foreseeable future.
Scraping the bottom of the barrel However, the views are threaded by one
The low oil price has wreaked havoc common consensus – that oil prices
to the oil industry, causing oil majors Bearing the most brunt of the rather are way below their fundamental value.
and national oil companies (NOCs) unexpected low prices situation in the Some analysts even suggest prices are
to reduce capital expenditure, halt oil industry is the shale oil players in not fairly reflective of the demand-sup-
exploration activities and scale back the US. The excitement of the prospect ply situation; in other words, they are
production. of the US becoming the world’s largest artificially deflated.
Oil prices are currently languishing exporter of oil has thus far not materi- There appear to be several factors which
in the US$40-plus region – more than alized. US shale oil producers have had have caused prices to be where they are.
half of the heady prices over US$100 to shelve production as it would not be Among some of the notable ones are :
per barrel seen a year ago. In this profitable to extract oil in the current • The lifting of sanction on Iran result-
weak price environment, oil compa- environment as oil prices scrape the ing the possibility of more oil being
nies do not find it economically viable bottom of the barrel. available in the global markets
to extract oil from ‘expensive sources’ Strangely, oil prices are languishing at • OPEC members – especially Saudi
such as deepwater, ultra-deepwater and a time when technologies to explore Arabia - continue to pumping oil to
marginal fields through enhanced oil and extract oil have never been more maintain market share and deny US
recovery. impressive, global demand has never shale oil producers to challenge their
The oil companies have scaled back been higher, prolific new fields continue dominance
investments on new ventures, delayed to be discovered and the fundamentals • Strengthening US Dollar against ma-
committed projects and trimmed exist- of the oil industry are rock-solid. jor currencies
ing ones at an almost unprecedented scale. To the uninitiated, it must be infuriat- • Fears over the health of China’s econ-
In the past one year, the business ing to try to figure out why oil prices omy which has been propping up the
pages have seen a spate of news of such are languishing at low levels amid all world economic growth in the last two
exercises. Among the more prominent these positive indications. Even profes- decades or so
names in the oil industry which have sional analysts and seasoned industry • The spectre of ‘production surge’ from
announced job cuts and ‘rationalization watchers who thought the oil prices had the full-scale take-off of US shale oil
exercises’ include oil majors like Chev- headed as farthest south as they could production
ron, ExxonMobil and Shell and NOCs go continued to be baffled by further The near 10 percent single day hike
like Malaysia’s Petronas and Brazil’s erosion of prices and the continued of Brent crude oil, the international
Petrobras which have trimmed down testing of lower levels of prices. bellwether index for global oil price, in
contract workers. It is not the objective of this article to August 2015 underscores the unpre-
This has triggered a chain of adverse unravel the reasons why oil prices are as dictable nature of the industry. It
multiplier effects across the oil indus- low as they are now despite the reason- also highlights the lack of consensus
try supply system, with vendors and ably strong fundamentals. The article among market analysts and industry
contractors bearing the brunt of the focuses more on the highlighting the practitioners as to why oil prices are de-
slowdown of the industry. Compa- opportunities available in the industry pressed and where prices are trending.
nies providing support services such amid the current industry landscape It is anybody’s guess where oil prices
as offshore support vessel (OSV) and scenario and likely scenario of weak oil will head in the foreseeable future. The
fabrication have also announced the prices in the coming years. common narrative is that oil prices
trimming down of employees in line However, a bit of perspective of why oil may trend further downwards as Saudi
with slowing down of requirements of prices remain weak is in order before Arabia – the world’s largest exporter
OSVs and offshore structures. the article explores the positive aspect of crude oil – continues to flood the
This has come hot off the heels of an- of the current situation. It provides market with ‘cheap oil’ to protect its
nouncements by companies looking to basis towards developing an under- dominance. Goldman Sachs even bold-
standing what the focus of oil majors ly pondered the possibility of oil
and NOCs are as they scale back in-
A A44 OIL & GAS ustral SIA SEPTEMBER/OCTOBER 2015 www.oilandgasaustralasia.com
