We had a get together for OPC clients and consultants on 11 February and asked everyone what they thought the oil price would be on 10 June (then 4 months ahead). Bearing in mind the Brent crude price was hovering just above $30 at the time, my forecast of $58 was easily the highest and roundly condemned as being hugely optimistic!
The average forecast was $36 with a couple of doom forecasters in the low 20s. With the current price on 28th April at $47 I am actually on track!! The price is up $17 in 11 weeks and just $11 left to climb until 10th June. And at $47, the price is actually already higher than every other guess (apart from mine and one fellow optimist whose $53 forecast actually could run me quite close).
The fundamental drivers of the oil price didn’t happen as I expected last year; US production falling, OPEC production agreements, and the lack of exploration and financial commitments to developments.
These factors are now all having an impact, finally, on the price of a barrel of oil. Helped by the continued global production decline estimated to be 6% per annum. The only other issue to address is the stocks of oil held in reserve by oil traders and countries which are just starting to decline.
The impact on the service and consultancy business has been severe. However, this is, for OPC maybe, just starting to change.
The operators with deep water, recent developments are still struggling with an oil price just above US$40/bbl. But there are many operators with production costs well below US$30/bbl, and some have told me at US$15/bbl.
Furthermore, the operators with production costs at around US$15-20/bbl, actually like the current oil price because they can now hire drilling rigs at costs per day of up to a quarter of what they were two years ago.
They are winning and excited about the current climate.
These operators, in fact ALL operators, also demand lower day rates and fees from OPC as well, which is unfortunate but understandable. But the point is there is business to be done, wells to be drilled and developments to develop in the current low oil price environment. And OPC is there to support them. OPC are now finding new opportunities among these “low cost” operators and are also providing services to other companies that “need things done” to keep production going and optimised.
So, for the immediate future, the oil price is less of a focus than the opportunities that exist for OPC to provide its services to companies that need them.
Piers Johnson
