Slow recovery likely, but still at risk

OE Staff
Monday, September 19, 2016

The pace and timing of an oil price recovery depends on four key drivers, according to McKinsey Energy Insights (MEI), a data and analytics firm. 

The firm forecasts that it will take more than six months for the oil markets to fully rebalance.

But the four short-term drivers for such a recovery will be: GDP growth, decline in producing fields, slowdown in US light tight oil (LTO) production and OPEC Gulf state behavior, in particular, Iran and Saudi Arabia.

The firm expects a slow recovery scenario to play out, under which it will take another six months for oversupply to disappear and another 6-12 months to burn excess inventories.

The research also notes that there is a key short-term risk that OPEC Gulf members have the capacity to add more than 3-4 MMb/d incremental production by 2019. This could potentially stifle oil prices further into 2018-19.

However, in the long-term, continuous cost compression efforts could reduce average marginal costs to US$65-75/bbl, driven by deep water and LTO plays, the firm says.

James Eddy, Head of MEI says: “The market is recovering but this may be slower than previously expected. We expect demand growth to decelerate as a result of slowing economic development and structural shifts in the transport sector.

“On the supply side, in addition to OPEC Gulf crude production, we see unconventionals and offshore resources playing an important role in replacing the 34 MMb/d decline in conventional basins through 2030.”

Categories: Finance Oil

Related Stories

Norwegian Court Pauses Ban for Two Aker BP-Operated Oil and Gas Fields

Beach Energy’s Otway Offshore Gas Victoria Up for Public Input

CEO Says Exxon Mobil Not Trying to Buy Hess

Current News

Netherlands Receives Multiple Bids in 4GW Offshore Wind Tender

Welsh Port Steps Closer to Becoming Floating Wind Hub

Baker Hughes: US Drillers Cut Oil and Gas Rigs for Second Week In A Row

Seaway7 Gets Baltica 2 Offshore Wind Job

Subscribe for OE Digital E‑News