Marginal production will generate price stability

Interesting to see the BP CEO stating that they are planning on price stability for the next five years. This is consistent with what I reasoned yesterday.

With shale a far more flexible marginal production choice than offshore it should take a degree of volatility out of the supply market as production increases warrant more incremental production investment, rather than large proportionate investments in mega-projects (clearly large projects are still going ahead as well, just less of them). The steady rise of the Baker-Hughes rig count this year is proof of this in action.

Rig Count Overview & Summary Count

Area

Last Count

Count

Change from Prior Count

Date of Prior Count

Change from Last Year

Date of Last Year’s Count

U.S.

3 March 2017

756

+2

24 February 2017

+267

4 March 2016

Canada

3 March 2017

335

-6

24 February 2017

+206

4 March 2016

International

February 2017

941

+8

January 2017

-77

February 2016

Source: Baker Hughes Rig Count

While offshore will still be important you can see that unconventional is extremely significant and is part of a strategy for oil companies to diversify there supply with a significant element that is driven by a more flexible, but higher, cost base.

Blanced Upstream Portfolio.png

As BP also made clear in their last strategy presentation “Oil demand will continue to grow but at a slower pace”, which should also reduce volatility in prices as the demand side remains stable.

Primary Energy Consumption.png

One thought on “Marginal production will generate price stability

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s