Oil prices fell by 3% to close in London at $52.36-barrel amid fears that record Iraqi crude exports and rising US domestic output will undermine OPEC’s efforts to curb global oversupply.
In Iraq, OPEC’s second-biggest producer, oil exports from the southern Basra ports reached a record high of 3.51 million barrels per day (bpd) in December, the oil ministry said in Reuters reports.
Meanwhile, Edinburgh-based market analyst Wood Mackenzie – in its global corporate outlook for 2017 forecasts the oil and gas industry will turn cash-flow positive for the first time since the downturn if OPEC production cuts drive oil prices above $55-barrel.
Tom Ellacott, senior vice-president of corporate analysis research, said: “Most oil and gas companies will start 2017 on a firmer footing, having halved cash flow breakevens to survive the past two years. Further evidence of a cautious, U-shaped recovery in investment should emerge.”
Wood Mackenzie’s corporate outlook assessed the 2017 prospects for the majors, independents and national oil companies, focusing on five themes.
- Strengthening finances will be a top priority
- US Independents to lead the sector into a new investment cycle
- Portfolios will adapt, down the cost curve and into new energy
- Modest growth in production despite past capex cuts
- An improved value proposition for exploration and mergers and acquisitions
Ellacott added: “Overall 2017 will be a year of stability and opportunity for oil and gas companies in positions of financial strength. More players will look at opportunities to adapt and grow their portfolios.”
But 2016 will prove to be the low point in the investment cycle, with confidence boosted by OPEC’s decision to cut production.
US independents will respond first to rising prices. Emboldened by a Trump administration committed to exploiting domestic oil and gas resources, US L48 operators have three core competitive advantages: access to capital; cost-advantaged portfolios; and flexibility to scale back spend sharply if prices stay low.
According to Wood Mackenzie, the US Independents could increase investment by over 25% if oil prices average above $50-barrel. But spend for the bigger players will continue to trend down – total investment by the Majors will fall by around 8% as recent capital-intensive projects wind down.