While the global outlook for oil is relatively bullish going into next year, there will be a soft oil price recovery, according to BMI oil and gas head Chris Haines.
Speaking during a webinar session focused on the global oil and gas industry on Thursday, Haines noted that BMI expected to see slightly weaker demand than in previous years.
“We don’t see the powerful emerging market growth that has driven oil demand over the past ten years. This is because currency is weaker, so it’s more expensive to import US dollar-value crude oil,” he said.
Haines added that BMI saw a strong move towards cleaner sources of energy, as well as a big move in subsidy reform in places such as the Middle East, India and parts of Nigeria, where prices have been normalised, which will have an impact on demand.
“On the supply side, we’ve seen a lot of companies position themselves in shorter cycle projects to more effectively react to price increases,” he said.
Haines noted that the Organisation of the Petroleum Exporting Countries (Opec) was building up a lot of capacity and that there was a lot of expansion potential to reach new market demand.
There had been a big fall in the oil price, he noted, which had a large effect on capital expenditure over 2015/16.
“We are expecting 2016 prices to average $45/bl, rising to $55/bl in 2017. We think 2017 will be the year of rebalancing, not going beyond $60/bl for the foreseeable future.”
He highlighted that there would be a lot more investment into lower-cost resources, therefore, there will be lower break-even projects, a lot of work on re-engineering, and a lot of service cost inflation, “some of which is cyclical, but mostly structural, with simplification and improved engineering of projects.”
“We are not sure if there will be a decision to curb oil production as a result of the upcoming Opec meeting on November 30, however, in our view, there could be a minimal cut. It won’t have a large impact, however, because we already have a substantial oversupply of oil,” Haines said.
He stated that Libya could double oil production next year and that Nigeria could produce between 5 000 bbl and 6 000 bbl of crude oil in 2017.
“We’ve seen a drop in capital expenditure (capex) of 24% from 2014 to 2015. In 2016, we expect companies to come in under guidance.”
He noted that BMI had a positive outlook for 2017, driven by the company’s price forecast. The research firm also expected a minimum of 2.5% growth in global capex; however, it could be as strong as 8% if there was growth in the oil price.
“Moving into 2017, we see the biggest increases in spending in the US, Russia and the Middle East. The US has really been pushed over the last couple of years and capital expenditure has been taken out of the market, he said, adding that there was a lot of attractive opportunity around $40/bl.
Haines said that Russia would see an increase in spending owing to the stronger rouble and that BMI was expecting more activity in the Middle East, which had benefited from cost savings. He said that the company saw investment activity from Iran and Iraq and that there were new projects being prepared in Kuwait, the United Arab Emirates and Saudi Arabia.
“Looking at 2018, we expect spending to be around the $500-million mark, which is still 10% lower than it was in 2015,” he said.