“You cannot improve a signal if you do not know what it signals”.
The oil price is hitting new highs but I don’t think this is going to have a dramatic effect on offshore for the next couple of years if at all. This is a supply constraint, particularly in relation to the Iran sanctions, and therefore this needs to resolved through the price mechanism in the short-term as all other swing producers are maxed out in terms of capacity as Libya and Venezeula also encounter problems.
This is a completely different investment narrative to the 2008-2014 boom. Then the rising price was viewed by the market as a reponse to rising Asian demand and the costs of developing new marginal sources of supply. The core of the rising price story was a demand driven boom.
No rational E&P company increases investments in 10-20 year fields in response to a price fluctuation with clear geo-political roots that could all be resolved in a relatively short period of time. By the time the field is built and delivered the political situation could have been resolved and then the extra capacity will just lower the price. I could be wrong but I find it incomprehensible that Iran can be kept out of the international oil market forever. For these sort of changes in supply the changes in supply and demand need to be met with the pricing mechanism. Some short-term changes in operating expenditure to boost production may become viable but not a wholesale commissioning of new fields.
As the Brookings Institute notes Trump seems to be pushing for regime change as the goal in Iran and the Saudis may have promised air cover with 2m b/d (and the strong administration links to Israel will also be coming into play here). This is a short term issue and maybe if the price gets too high here, and no one really believes the Saudi Arabia can come up with that sort of number in the short-term, then that will cause a change in policy. But I doubt it… Price will be the relief valve for what extra production OPEC cannot cover in the short-term.
As I have mentioned here before I think the link between the oil price and the demand for offshore services has altered fundamentally. Simply claiming now that a supply driven change will automatically be positive for offshore in a substative way is I think wrong and does not account for the difference between a demand driven expansion and a supply constricted shortage.