Budget caution averts panic over oil price slide

Bob Tippee

The price of crude oil has fallen by more than $7/bbl in 3 weeks. Shouldn't oil companies be canceling projects, laying off workers, and shedding physical assets? Is a $7/bbl slide no longer sufficient to shove industry managers into scorched-earth mode?

Apparently not. There's no sense of panic. Companies are going about their business.

Part of the reason for the calm response to a bona fide price slump is simple arithmetic. A $7 decline from $56/bbl, in the case of West Texas Intermediate spot crude, isn't the same as a $7 swoon from $20/bbl.

Furthermore, few decision-makers in the industry expected $56/bbl oil to last.

Sure, the price might have lurched even higher if oil-field strikes had curtailed exports from Nigeria or political unrest had again idled Venezuela. Either calamity can still happen.

But $56/bbl and up forever? With no supply emergency? No way.

For the moment, the market has plenty of oil. Members of the Organization of Petroleum Exporting Countries have increased production. Output in the Gulf of Mexico is rising back toward its level before Hurricane Ivan forced shut-in of as much as 30%. Oil is moving into inventory.

For the first time in a long time, prompt prices have slipped below those of forward prices several months into the future. The pattern, called contango, encourages storage.

The market thus is trying to repair its eroded buffers. It's still vulnerable to a sudden loss of supply, of course. Idle production capacity remains less than the deficit that would result from any one of several easily imaginable disruptions. For that reason, continuation of the inventory build is especially important.

Without such a disruption, how low will oil prices go? One high-profile guess comes from Total CEO Thierry Desmarest recently, who recently told Le Figaro of France they might approach $30/bbl next year.

So a $7/bbl dip would become a $25/bbl slump. What would oil companies do then?

Not much, probably. Most companies still base budgets on $20-25/bbl oil. A few weeks ago, price thresholds that low, according to many observers, were too cautious. They're beginning to look wise.

(Author's e-mail: bobt@ogjonline.com)

Related Articles

Magellan, PAA form Saddlehorn crude pipeline joint venture

02/27/2015 Magellan Midstream Partners LP and Plains All American Pipeline LP have formed Saddlehorn Pipeline Co., a 50-50 limited liability joint venture, to...

Speaker suggests how Russian regime change might occur

02/27/2015

Speculative details about regime change in Russia have emerged from an especially interesting source.

Recent CSIS report outlines main US oil infrastructure challenges

02/27/2015 The US crude oil renaissance has created strong demand for expanded US transportation systems, resulting in five primarily challenges, a recent Cen...

PetroChina mulling sale of its stake in Arrow CSG

02/27/2015

PetroChina is reportedly considering selling its half of Arrow Energy’s Queensland coal seam gas (CSG) resources.

MARKET WATCH: NYMEX crude oil prices swing down again

02/27/2015 The contract for US light, sweet crude oil for April delivery plunged by more than $2.80/bbl on the New York market Feb. 26 as volatility sent crud...

Low crude prices pressure Latin American producers, CSIS forum told

02/26/2015 Depressed crude oil prices are putting new pressure on Latin American producing countries to improve terms if they expect to attract outside invest...

Petroleum detected in fish tested after Yellowstone River pipeline spill

02/26/2015 Detectable levels of petroleum were found in tests of fish pulled from the Yellowstone River downstream from a broken petroleum pipeline near Glend...

Suriname bid round draws lackluster response

02/26/2015 The dramatic fall in oil prices is being blamed for the lack of interest shown by international oil companies (IOCs) in the deepwater offshore Suri...

House panel launches probe of DOS’s Keystone XL application process

02/26/2015 The US House Oversight and Government Reform Committee began an investigation of the US Department of State’s environmental impact statement for th...
White Papers

Pipeline Integrity: Best Practices to Prevent, Detect, and Mitigate Commodity Releases

Commodity releases can have catastrophic consequences, so ensuring pipeline integrity is crucial for p...
Sponsored by

AVEVA’s Digital Asset Approach - Defining a new era of collaboration in capital projects and asset operations

There is constant, intensive change in the capital projects and asset life cycle management. New chall...
Sponsored by

Transforming the Oil and Gas Industry with EPPM

With budgets in the billions, timelines spanning years, and life cycles extending over decades, oil an...
Sponsored by

Asset Decommissioning in Oil & Gas: Transforming Business

Asset intensive organizations like Oil and Gas have their own industry specific challenges when it com...
Sponsored by

Squeezing the Green: How to Cut Petroleum Downstream Costs and Optimize Processing Efficiencies with Enterprise Project Portfolio Management Solutions

As the downstream petroleum industry grapples with change in every sector and at every level, includin...
Sponsored by

7 Steps to Improve Oil & Gas Asset Decommissioning

Global competition and volatile markets are creating a challenging business climate for project based ...
Sponsored by

The impact of aging infrastructure in process manufacturing industries

Process manufacturing companies in the oil and gas, utilities, chemicals and natural resource industri...
Sponsored by

What is System Level Thermo-Fluid Analysis?

This paper will explain some of the fundamentals of System Level Thermo-Fluid Analysis and demonstrate...
Available Webcasts


The Alternative Fuel Movement: Four Need-to-Know Excise Tax Complexities

When Thu, Jun 4, 2015

Discussion on how to approach, and ultimately embrace, the alternative fuel market by pulling back the veil on excise tax complexities. Taxes may be an aggravating part of daily operations, but their accuracy is crucial in your path towards business success.

register:WEBCAST



On Demand

Prevention, Detection and Mitigation of pipeline leaks in the modern world

Thu, Apr 30, 2015

Preventing, detecting and mitigating leaks or commodity releases from pipelines are a top priority for all pipeline companies. This presentation will look at various aspects related to preventing, detecting and mitigating pipeline commodity releases from a generic and conceptual point of view, while at the same time look at the variety of offerings available from Schneider Electric to meet some of the requirements associated with pipeline integrity management. 

register:WEBCAST


Global LNG: Adjusting to New Realities

Fri, Mar 20, 2015

Oil & Gas Journal’s March 20, 2015, webcast will look at how global LNG trade will be affected over the next 12-24 months by falling crude oil prices and changing patterns and pressures of demand. Will US LNG production play a role in balancing markets? Or will it add to a growing global oversupply of LNG for markets remote from easier natural gas supply? Will new buyers with marginal credit, smaller requirements, or great need for flexibility begin to look attractive to suppliers? How will high-cost, mega-projects in Australia respond to new construction cost trends?

register:WEBCAST


US Midstream at a Crossroads

Fri, Mar 6, 2015

Oil & Gas Journal’s Mar. 6, 2015, webcast will focus on US midstream companies at an inflection point in their development in response to more than 6 years shale oil and gas production growth. Major infrastructure—gas plants, gathering systems, and takeaway pipelines—have been built. Major fractionation hubs have expanded. Given the radically changed pricing environment since mid-2014, where do processors go from here? What is the fate of large projects caught in mid-development? How to producers and processors cooperate to ensure a sustainable and profitable future? This event will serve to set the discussion table for the annual GPA Convention in San Antonio, Apr. 13-16, 2015.

This event is sponsored by Leidos Engineering.

register:WEBCAST


Emerson Micro Motion Videos

Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!

 

Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected