Encouraging signs following oil price rise

Having started 2017 facing a lack of investment and high volumes in storage, the international oil and gas business saw a steady improvement over the course of the year, with the oil price gradually climbing and now approaching USD65 per barrel.

Some cite the production cut agreement worked out by the Organization of Petroleum Exporting Countries (OPEC) and Russia as being behind this recovery, but underlying factors supporting a continuing price rally are also apparent.

Price rally

Some commodity investors suggest that oil prices could surge as high as USD110 per barrel this year. Bullish investors point to the fact that inventories continue to fall, with demand forecast to increase this year. OPEC is expected to restrict oil production output until at least the end of 2018.

The US Energy Industry Association (EIA) reported another strong drawdown in crude stocks for the week ending on January 5, 2018. At 419 mn barrels and falling, US crude inventories have not been this low since early 2015.

On the demand side of the equation, OPEC sees demand growing at a brisk 1.5 mn barrels per day in 2018; the International Energy Agency (IEA) expects a softer 1.3 mn barrel per day growth this year.

Encouraged by the rising oil price, there has been talk of restarting previously postponed projects, which would be good news for the project logistics companies that serve this sector.

But there has also been the suggestion that price increases could slowly undermine the willingness of Middle Eastern producers to comply with agreements made with OPEC, which would create further uncertainty in the sector and could negatively impact oil prices.

This story was first published in the CapProCon e-newsletter.

oil and gas. Capital Projects and Contracts.

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