Accurate foresight in the oil sector is a rarity, and with the tumultuous market far from steady state, understanding how the oil market will look over the next couple of years is enormously complex. Volatility is the new norm, prompting asset rationalisation, lowered production, as well as attempts at lowered costs and debt reduction.
Predicting the recovery of the oil price, and forecasting when the oil market will return to balance is hit or miss, with 2015 predictions wide off the mark. Supply continues to exceed demand, resulting in a negative price outlook in the short term.
While political and economic drivers of the oil price mean that the development of profit margins will remain unpredictable, consensus on market fundamentals is relatively positive. The positivity may stem from the significant global oil supply decrease in May, for the first time since early 2013 (International Energy Agency (IEA.)
Recent supply stoppages, triggered by factors including the wildfires in Canada, attacks on Nigerian oil pipelines and the steady decline in US production, has many hopefuls predicting the market balance to shift towards demand. In fact, the view is that world demand will exceed supply in as early as the second half of 2017 (Consensus Economics), as the globe retains its hunger for oil.
The temporarily disrupted crude oil supply saw the price of the international benchmark, Brent Crude, spike in the second quarter of 2016. This trend is echoed by the forecast consensus where the price for a barrel of Brent Crude is predicted to increase by approximately 14% from USD45.60/barrel in the second quarter of 2016 to USD51.87/barrel in the second quarter of 2017 (Consensus Economics.)
A picture of recovery is emerging, and consumption is anticipated to be driven by growth in countries outside of the OECD (Organisation for Economic Cooperation and Development), as is predicted by the EIA (U.S. Energy Information Administration.)
Venmyn Deloitte has observed an increased interest in upstream petroleum projects within this new market dynamic, says Tarryn Orford, Venmyn Deloitte Oil and Gas advisor. With these speculative and somewhat positive downstream market movements, has upstream exploration received a push?