After the North American rig count hit bottom in May 2016, the number of oil and gas rigs has steadily been enjoying an increase. At its lowest point the North American rig count dipped to 404 rigs. That's a historical low never seen since the rig count statistics started being taken. The good news is that today the rig count has climbed to 729 rigs in North America. Sustaining this increase is of course the price of oil which is holding steady at 55 dollars per barrel of WTI.
These are welcome signs as we start 2017 but not an 'all clear signal' to be sure.
The basic indicators are not solid in that the main oil producing nations have agreed to curtail production subject to quotas. Market fundamentals are not at play here but rather an agreement amongst countries that have to ensure that their domestic constituencies are acquiescent.
The aftermath of the sustained downturn has seen many smaller operators going bankrupt. Only the bigger operators and service companies remain ready to enjoy the upturn in activity. According to the Houston Chronicle even Weatherford 'idled' its fracking business this past week.
The other major effect of the past 2 years has been the efficiency gains by the remaining companies in the sector. Worldwide oil and gas operations are now being run extremely efficiently as a result of this 'new normal' in the industry.
As we start the new year, the price of oil is hovering at $37 per barrel for bellweather West Texas Intermediate crude. This is a particularly low price and there are analysts that claim that the price may well drop to $20 per barrel before the inevitable upswing starts. This may be unduly pessimistic but it's worth mentioning.
The forecasts by service company presidents back in July 2015 indicated that the bottom had been reached at around $47 per barrel only to be proven very wrong. Actually, a cold look at the indicators should have been enough to see the optimism in those remarks as simply wishful thinking. Saudi Arabia was showing no desire to slow production, US domestic producers were stubbornly continuing to produce oil, and storage capacity in the US was filling up to its maximum. The chinese economy had settled into a lower growth model without difficulty. Hardly any indications that the supply and demand equation for the commodity was in an inflection point.
Fast forward to today and Saudi Arabia has not only not slowed production, it has ramped up its production, China continues in slow growth mode, and the US is facing a mild winter. In short, the fundamentals are not showing a change as we start the new year.
The industry is in the midst of a major adjustment as the price of oil (WTI) has stabilized at $50 per barrel. This represents a drop in price of ˜50% from prices merely one year ago.
The effect on small operators is being felt as more are reducing projects and some are even closing shop. However this is not as deep as the impact on oil service sector companies which have experienced major cutbacks in Q1 and Q2 of 2015.
According to the Houston Chronicle, Houston has seen a total of 150,000 layoffs due to this industry downturn. So far.
The future is hinging on supplies in the market which have seen a large increase due to the shale oil plays in Texas and North Dakota. Also, the global oil market is being influenced by the Chinese market which has seen changes in the past months. The Iran nuclear agreement is expected to add capacity to the global oil inventory but percentage-wise this will not be considerable so the impact should be minor.
The need in the industry for a synergistic IT presence that addresses Oil and Gas challenges is clear. With the advent of mobile technologies and the ever increasing complexity and expense of energy plays, it is clear that the industry requires a partner to leverage know-how and experience in these technologies.
This is where Flowers Business Solutions can work for you.
Contact us and let's discuss how Flowers Business Solutions can make technology work for you.
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