A turbulent year

Sam Fletcher
Senior Writer

The waning year of 2008 is sure to be remembered as one of the most turbulent in the history of the oil and gas industry, said energy analysts.

Some earlier assumed it would take years for crude to climb to the record high of $147.27/bbl that it achieved in July on the New York Mercantile Exchange. At one time, it also seemed inconceivable that a front-month crude contract could plunge from nearly $150/bbl to less than $45/bbl in just 6 months. The January contract for benchmark US sweet, light crudes dropped to $43.67/bbl Dec. 4—the lowest closing on NYMEX since January 2005. "It is now becoming apparent that we live in a world that is much faster moving and more interconnected than we appreciated," said analysts at KBC Market Services, a division of KBC Process Technology Ltd. in Surrey, UK.

Energy markets suffered a psychological blow Dec. 1 when the National Bureau of Economic Research (NBER) confirmed the US economy has been in recession since December 2007. NBER said US employment and incomes peaked last December; industrial production peaked in January; and sales peaked in June. "Almost the entire developed world is, to all intents and purposes, deep in recession with economic growth almost certain to be negative in 2009," said KBC analysts. It's the first time since World War II there have been simultaneous recessionsin the US, the UK, Europe, and Japan.

Recession cuts demand
In the Houston office of Raymond James & Associates Inc., analysts said, "The global financial meltdown is now likely causing meaningful oil demand destruction around the world. As a result, we are taking down our 2009 oil price forecast from $90/bbl to $60/bbl. We readily admit that our visibility and confidence in these new estimates are very low. There are simply too many moving parts to get any confidence in near-term oil prices." Still, they said, "Intuition would suggest that the market's recent rush to liquidity has caused oil prices to overshoot on the downside. Unfortunately, we don't know whether or not the market liquidation of virtually all commodities is over."

While short-term issues and energy prices remain anyone's guess, "eventual improvements on the demand side and additional OPEC cuts will turn crude prices around by the second half of 2009," said Raymond James analysts. The general consensus is that the Organization of Petroleum Exporting Countries will cut production by 1 million b/d Dec. 17 in Oran, Algeria.

Oil markets are so focused on demand rather than supply that a production reduction of 2 million b/d may not have any more effect on oil prices than a cut of 1 million b/d, said Paul Horsnell, Barclays Capital Inc., London.

Meanwhile, many observers suspect OPEC members have not been consistent in complying with the 1.5 million b/d production reduction that began Nov. 1. Although the group's output declined in November for the third consecutive month, other sources indicate only 66% of that most recent cut has been made, not yet enough to offset the decline in oil demand. Total OPEC output was down to 31.2 million b/d in November from 32.17 million b/d in October. The 11 OPEC members supposed to comply with the group's quotas produced 28.07 million b/d in November compared with 29.06 million b/d in October.

Most reductions have been among some OPEC members bordering the Gulf of Iran, with Saudi Arabia down almost 500,000 b/d. But no major reductions were yet evident among economically troubled members such as Iran and Venezuela.

Horsnell said, "Ultimately we expect that the market will get overtightened, but it will be an incidental effect of further severe disappointments in non-OPEC supply, rather than the result of any direct OPEC policy to overdo the supply-side contraction.

In New Orleans, Pritchard Capital Partners LLC analysts said, "There is simply no faith that global supply will tighten in the next 60 days, and the 'great unwinding' of leverage is still an ongoing process. Oil prices are not likely to rebound until either OPEC makes a substantial production cut or the economy begins to recover and refined product demand firms up."

KBC analysts surmised, "Higher prices will inevitably return." They expect world oil demand to grow by 21 million b/d between 2007 and 2030 at an average annual rate of nearly 1 million b/d, with China in the lead. "Total non-OPEC crude oil production will peak at the end of the next decade, and the world will need more oil from OPEC—biofuels will barely make a significant contribution," they predicted.

(Online Dec. 8, 2008; author's e-mail: samf@ogjonline.com)

Related Articles

US Forest Service takes no stance on fracturing in national forest

12/12/2014

The US Forest Service has dropped a proposal that would have banned hydraulic fracturing in the George Washington National Forest.

Frac ban exemption made in Broomfield

12/12/2014 A Colorado District Court judge has ruled that a hydraulic fracturing ban in Broomfield, Colo., does not apply to an operator that entered into an ...

OSHA seeks to limit silica exposure for oil workers, Proposed rules target frac sand mining, fracturing

12/12/2014 The rapid growth in oil and gas production from shale and tight oil formations in the US is generating a boom in a related industry: frac sand. San...

Study links methane contamination in water wells to poor well construction-not fracing-in Marcellus

12/12/2014 A new study found that fugitive gas contamination at eight clusters of water wells in the Marcellus and Barnett shale regions might be linked to we...

Weak crude prices could threaten Bakken production growth

12/12/2014 Bakken shale production set another record in August, but weakening crude prices and flaring reduction efforts threatened to temper production grow...

Husky reports start of steam operations at Sunrise oil sands project

12/12/2014

Husky Energy, Calgary, reported the start of steam operations at the in situ Sunrise Oil Sands Project in northeastern Alberta.

TAEP: TPI still peaking, but ‘contraction unavoidable’ as oil prices fall

12/12/2014 The Texas Petro Index (TPI), a composite index based on a comprehensive group of upstream economic indicators released by the Texas Alliance of Ene...

US needs more data before ending crude export ban, House panel told

12/11/2014 Much more environmental impact information is needed before the US can reasonably remove crude oil export limits, a witness told a House Energy and...

BOEM raises offshore oil spill liability limit to $134 million

12/11/2014 The US Bureau of Ocean Energy Management increased the liability limit for oil-spill related damages from offshore operations to $134 million from ...

White Papers

What is System Level Thermo-Fluid Analysis?

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

Accurate Thermo-Fluid Simulation in Real Time Environments

The crux of any task undertaken in System Level Thermo-Fluid Analysis is striking a balance between ti...

6 ways for Energy, Chemical and Oil and Gas Companies to Avert the Impending Workforce Crisis

As many as half of the skilled workers in energy, chemical and oil & gas industries are quickly he...
Sponsored by

AVEVA NET Accesses and Manages the Digital Asset

Global demand for new process plants, power plants and infrastructure is increasing steadily with the ...
Sponsored by

AVEVA’s Approach for the Digital Asset

To meet the requirements for leaner project execution and more efficient operations while transferring...
Sponsored by

Diversification - the technology aspects

In tough times, businesses seek to diversify into adjacent markets or to apply their skills and resour...
Sponsored by

Engineering & Design for Lean Construction

Modern marketing rhetoric claims that, in order to cut out expensive costs and reduce risks during the...
Sponsored by

Object Lessons - Why control of engineering design at the object level is essential for efficient project execution

Whatever the task, there is usually only one way to do it right and many more to do it wrong. In the c...
Sponsored by

Available Webcasts



The Future of US Refining

When Fri, Feb 6, 2015

Oil & Gas Journal’s Feb. 6, 2015, webcast will focus on the future of US refining as various forces this year conspire to pull the industry in different directions. Lower oil prices generally reduce feedstock costs, but they have also lowered refiners’ returns, as 2015 begins with refined products priced at lows not seen in years. If lower per-barrel crude prices dampen production of lighter crudes among shale plays, what will happen to refiners’ plans to export more barrels of lighter crudes? And as always, refiners will be affected by government regulations, particularly those that suppress demand, increase costs, or limit access to markets or supply.

register:WEBCAST


Oil & Gas Journal’s Forecast & Review/Worldwide Pipeline Construction 2015

When Fri, Jan 30, 2015

The  Forecast & Review/Worldwide Pipeline Construction 2015 Webcast will address Oil & Gas Journal’s outlooks for the oil market and pipeline construction in a year of turbulence. Based on two annual special reports, the webcast will be presented by OGJ Editor Bob Tippee and OGJ Managing Editor-Technology Chris Smith.
The Forecast & Review portion of the webcast will identify forces underlying the collapse in crude oil prices and assess prospects for changes essential to recovery—all in the context of geopolitical pressures buffeting the market.

register:WEBCAST



On Demand

Optimizing your asset management practices to mitigate the effects of a down market

Thu, Dec 11, 2014

The oil and gas market is in constant flux, and as the price of BOE (Barrel of Oil Equivalent) goes down it is increasingly important to optimize your asset management strategy to stay afloat.  Attend this webinar to learn how developing a solid asset management plan can help your company mitigate costs in any market.

register:WEBCAST


Parylene Conformal Coatings for the Oil & Gas Industry

Thu, Nov 20, 2014

In this concise 30-minute webinar, participants have an opportunity to learn more about how Parylene coatings are applied, their features, and the value they add to devices and components.

register:WEBCAST


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