A swathe of mid-year results issued by integrated energy majors paint an interesting picture, indicating that they have adapted to lower oil prices by cutting costs and increasing the efficiency of their operations.
The results show that European majors, including BP and Royal Dutch Shell, made more profit over the first six months of 2017 with oil prices averaging USD52 per barrel, than they achieved in H1 2014 when oil prices surpassed USD100.
Research suggests that in the higher oil price environment the majors overreached on projects, resulting in delays and cost overruns. However, many of those projects have now come online and are generating revenue, which has coincided with aggressive cost-cutting measures, resulting in higher profitability.
However, Charles Diebel, head of rates at Aviva Investors, says that USD50 per barrel is the “upper end of the range” for oil prices in the current market. Aviva’s assessment is that as the summer driving season in the USA winds down, oil prices could head towards the USD40 per barrel mark.
Jeff Currie, global investment research at Goldman Sachs, said that at the beginning of 2017 its forecast for oil was USD55 per barrel, “driven by a strong cyclical upwind in global demand coupled with an OPEC production cut targeted at bringing forward the positive benefits of the underlying economic growth.”
Currie added that story played out for the first several months of 2017 but, more recently, it started to unravel. Where oil prices will finish the year is unclear. “Ultimately, where the market finds an equilibrium is still uncertain. Driving that uncertainty is the costs and technological innovations being driven from the new world oil order in a shale industry that is continually evolving.”
Uncertainty is prevalent. Those companies that move heavy and oversize cargoes to support oil and gas industry developments must continue to adopt the ‘wait and see approach’.