Oil price spike no cure for non-OPEC supply collapse

Soaring oil prices may have come too late to avert both a collapse in oil supply growth from countries outside the Organization of Petroleum Exporting Countries and a new rig market famine next year, according to Petrodata Research, the forecasting arm of industry data analysts OneOffshore Inc.


Darius Snieckus
OGJ Online

STAVANGER�Soaring oil prices may have come too late to avert both a collapse in oil supply growth from countries outside the Organization of Petroleum Exporting Countries and a new rig market famine next year, according to Petrodata Research, the forecasting arm of industry data analysts OneOffshore Inc.

Though oil companies have been flush with cash for the last year, this new money is being spent not on drilling wells but rather on "defending their balance sheets, buying back shares, and competing with high growth technology stocks," said Petrodata analyst Maarten van Mourik at the Offshore Northern Seas (ONS) 2000 conference in Stavanger yesterday.

"Upstream activity has been in the doldrums and is only now picking up," Van Mourik added. "That slow recovery may not have a positive impact on non-OPEC oil supply in the immediate future."

The current state of the market and "underlying pressures" are signaling a repeat if the 1995-98 cycle, in Van Mourik's opinion, which ended in the oil price crash and pan-industry recession.

"The portfolio of new developments has dried up so much that it is hard to project increases in non-OPEC oil supply for 2001," he suggested, resulting in the burden of supply having to be shouldered by OPEC.

As well as its negative influence on oil supply, the spending drop over the last 2 years is also hitting the deepwater rig markets, states Van Mourik. He believes oil company plans for fast-tracking new frontier field developments will likely be "too optimistic" in the light of an imminent rig market squeeze.

"Poor day rates have made contractors wary of committing to further building of new rigs," he said. "As a result, we predict that the available fleet will be insufficient again shortly to cope with increasing demand and develop the potential of all those deepwater fields.

"The ultradeepwater segment, 5,000 ft water depths and beyond, is the leading indicator here, and that segment is already in physical shortage," Van Mourik added.

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