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Page added on January 26, 2016

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Oil Price Will Increase in Next ‘Few Months’

Consumption

Oil prices will only stay at current levels for the next few months, according to Stuart Amor, the ex-head of oil and gas research at financial advisory firm RFC Ambrian.

Amor, who made the statement in a presentation at the Finding African Oil event in London Monday, which was attended by Rigzone, said that around 10 percent of non-OPEC supply is cash-flow negative at the operating level in the low oil price environment affecting the industry today.

“At $30 per barrel, which is where we are today, about ten percent of non-OPEC supply is cash flow negative at the operating level, so I don’t think the oil prices can stay down here for more than a few months. If they do, then some of that supply is going to get shut-in,” Amor said, addressing oil and gas delegates at Finding Petroleum’s conference.

In spite of the decreasing oil price, Amor suggested in his presentation that the oil and gas industry wouldn’t see an increase in M&A (merger and acquisition) transactions until the volatility of crude prices subsided:

“The biggest determinant in the number of M&A transactions is the commodity’s volatility. Highly volatile prices, particularly at the long end of the curve, and we’ve seen a lot of that over the last couple of weeks, make it much harder for buyers and sellers to agree prices. So we live in an uncertain world and it’s got a whole more uncertain in the last two weeks. Indeed the recent spike in crude volatility hasn’t been seen since the height of the global financial crisis in 2008. That will need to change for a lot of M&A transactions now to occur.”

Amor held the position of head of oil and gas research at RFC Ambrian for almost four years, covering several Africa-focused mid-cap and junior oil companies including Tullow Oil, Ophir Energy, Seplat and African Oil Corp. He was previously the head of global equity research at ING.

RIGZONE



12 Comments on "Oil Price Will Increase in Next ‘Few Months’"

  1. makati1 on Tue, 26th Jan 2016 7:11 pm 

    RIGPORN…

  2. geopressure on Tue, 26th Jan 2016 8:19 pm 

    Of Course the price is going up in the coming months…

    The World is in for a very big surprise…

    Anyone who believe that there is/was an oil glut is in for a very big surprise…

  3. twocats on Tue, 26th Jan 2016 9:02 pm 

    Amor in a “Not Finding African Oil” event – there I fixed it for them. Tullow, Ophir, all those companies are complete losers. Tullow lost like 1.5 million in 2014. Their stock price has fallen from like 1,500 to 139 in 4 years. What do any of these people know about anything?

  4. Davy on Wed, 27th Jan 2016 6:04 am 

    Interesting article for the oil guru’s to digest here.

    “Oil Prices in 2016 Will Be Determined By These 6 Factors”

    http://oilprice.com/Energy/Energy-General/Oil-Prices-in-2016-Will-Be-Determined-By-These-6-Factors.html

    “The one given in this industry is that the analyst community is consistently wrong about where the price of oil is going in the near to mid-term. Just as $100 oil was a sentiment driven price that baked in the risk of every potential negative impact on the supply chain, $28, $30 or $40 dollars is equally sentimental, assuming that any and all incremental barrels are and will be available AND demand will slow or stop.”

    “First, people will produce existing wells at rates that aren’t sustainable to preserve cash flow or compete for market share, because the cost to drill and bring online is already sunk. Second, new wells will not be drilled if there isn’t at least an outlook to breakeven producing them. That means an expectation of a sustained price over 1-3 years or until the well has been paid out.”

    “So, the U.S. isn’t going to be the bringer of oil glut news going forward. In fact, the U.S. oil patch has severely damaged its capacity to rebound from an oil field services point of view, with companies foregoing normal maintenance to just survive. This deferred maintenance will have permanent consequences. Score: NOT a driver.”

    “Saudi Arabia’s Ability To Grow Production
    Whereas Saudi’s rig count is up, so is its production. They are producing record amounts and most analysts believe that there is little if any behind valve production. SCORE: NOT a driver”

    “Iran has not been investing in their infrastructure and they require outside dollars to reinvest in existing production, ranging from $30 billion to $500 billion over the next 5 years, depending on the source to maintain what they have. $30 oil is not an environment amenable to outside tender offers. Some claim that there will be no net new production in the near term, that Iran will merely start to recognize the production of oil it has sold in the black market. In any case, 500 mbpd ‘new’ production are baked in as of last week. SCORE: NOT a driver”

    “As the year has progressed, the Chinese economy exhibits signs of extreme duress, suggesting that demand growth could weaken materially. Imports of metals and building materials are down substantively. Oil is not. China continues to import crude oil at increasing rates,…… The IEA and EIA’s production growth estimates both suggest that the market isn’t going to elastically respond to lower crude prices, in essence saying that lower price will not drive higher consumption for the first time ever and despite the surprise increase in consumption in 2015 SCORE: NOT a driver.”

    “Essentially, Russia had a half price drilling environment and was effectively hedged by its cratering currency because it pays for new wells in rubles and sells its crude in dollars. This advantage doesn’t exist at commodity prices this low. Russia isn’t likely to spend a buck to get back 20 cents in the first year. SCORE: NOT a driver.”

  5. peakyeast on Wed, 27th Jan 2016 6:47 am 

    Now if I had 100 beans a day on my plate and that was all I had to sustain my life each day – then I were in a serious glut of beans if I had 102 beans? It would take me 50 days to build up one extra plate of beans.

    So much in a glut of beans that the value I will accept to pay for the 100 beans suddenly plummit to a tiny fraction.

    Something is very wrong.

  6. rockman on Wed, 27th Jan 2016 7:22 am 

    peaky – But what if during that 50 day period you increased your bean consumption. It might take 200 days…in fact you might never. IOW as your appetite grows thanks to lower bean prices (as is happening with oil) your “glut” disappears…if you really had one in the first place.

  7. beammeup on Wed, 27th Jan 2016 10:09 am 

    So should oil be expected to have a price elasticity like entertainment – where a typical person will use a lot more when the price gets really cheap, and will also cut back significantly when it goes the other way? Or is it more like toilet paper – where one’s usage doesn’t vary much, regardless of big price swings? I think it has elements of both discretionary and non-discretionary usage, but more of the latter than the former, at least when it comes to short term price response. So I’m not terribly surprised there hasn’t been a huge, sudden increase in usage in response to lower prices. Over the longer term there might be (e.g., sell the current automobile and buy a bigger one, move to a new house farther from work, etc.).

  8. Krnz300 on Wed, 27th Jan 2016 10:17 am 

    Where are all the Canadian tar sands investors……

    Can they survive $30 oil……

  9. shortonoil on Wed, 27th Jan 2016 2:48 pm 

    Most of these estimates come from looking at the forward cost curves generated from the futures market. It is a lot like technical analysis done in the equity markets; the results depend on whether you are standing on your feet, or on your head. It’s a skill like deciphering hieroglyphics, or reading the throw of a can of dried chicken bones. With a little bit of practice anyone can be an expert.

    We can say with a 95.5% probability the WTI will fall between $0 and $65 during 2016. Anything better than that requires a Ouija board.

    http://www.thehillsgroup.org/

  10. JuanP on Wed, 27th Jan 2016 3:29 pm 

    Short, I recently posted a comment on another thread saying that I expect oil prices in 2016 to stay between $20 and $60 barring major geopolitical events directly affecting oil prices. That is, of course, nothing more than a guess. Could it go lower or higher than that? Again, of course it could, but not for long in my opinion. The global economy and the oil industry couldn’t take it. At some, likely later, point the global financial system will no longer work as it is and after that all bets are off, but it looks like it will be rough going all the way down.

  11. shortonoil on Thu, 28th Jan 2016 10:32 am 

    “Short, I recently posted a comment on another thread saying that I expect oil prices in 2016 to stay between $20 and $60 barring major geopolitical events directly affecting oil prices. That is, of course, nothing more than a guess.”

    Here is the derivation behind the statement that oil is range bound, and that range is defined by this graph:

    http://www.thehillsgroup.org/depletion2_022.htm

    Petroleum provides energy to the economy, and that energy has a value that can be stated in dollar units. We know what that value is because the World Bank, and the EIA have given us the data to plot it:

    http://www.thehillsgroup.org/depletion2_008.htm

    The energy delivered is derived from the Etp Model, and the Model is verified by its 60 year correlation to the price (and other metrics):

    http://www.thehillsgroup.org/depletion2_007.htm

    It is not a guess, it is a calculation, and the veracity of that calculation is determined by the accuracy of the information that is fed into it. We assume that the EIA and the World Bank has provided the best possible “guess” that was possible for the data used.

    http://www.thehillsgroup.org/

  12. peakyeast on Thu, 28th Jan 2016 5:40 pm 

    rocky: My point was exactly that the socalled glut is tiny and the market price has absolutely nothing to do with real value.

    I think … 🙂

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