A supply rich market…

The above graph comes from the New York Federal Reserve who publish the weekly (and free!) Oil Price Dynamics report. I have no wish to obsess over the daily price, which is obviously important in certain professions, but in offshore the trend is more crucial. And as can be seen from 2012 supply factors began to dominate the market (the methodology basically collects a range of factors and then the sum of demand+supply+residual=price). It sounds intuitively to be a better methodology than daily explanations of what could clearly be spurious reasons by commentators on minor movements and seems to reflect the complexity of the market. The timing of supply dominance is clearly the result of the US Shale industry.

IA-Energy-Shale-Oil-2007-2017

This is in an environment where major E&P company capital expenditure is continuing to decline. DNB forecast E&P capex to drop another 18% in 2017 compared to 2016 and of this a higher proportion will be focused onshore. The drop in prices recently could not have come at a worse time for offshore as CFOs of the E&P companies finalise budgets for next year.

The narrative and numbers are moving towards shale in an unmistakable shift. A quick look at ExxonMobil’s performance in the Permian shows why:

XOM AP Q1 17

The heading in this Conoco Phillips slide says it all:

CP Shale 17Q1.png

These are not original thoughts but merely set out to reinforce the view that if your story is for a market recovery next year it needs to be a really good story. It was good to see Kraken start in the North Sea but it is a statistical oddity not the norm.

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