Riyadh’s tactics can’t exactly be called a success.
The supply / demand war in the oil markets has been primarily down to two players; on one hand the phenomenal growth in United States production from shale – on the other, the head state of a producing cartel looking to overturn its declining market share. Saudi’s stubborn resilience in dictating a low oil price for the last two years has had negative impacts on a wide spread of economies. Close to home, the North Sea industry has all but collapsed in the wake of the pricing trough; unable to sustain production from ageing offshore fields where extraction costs soar high.
US producers halved in value whilst OPEC production continued to grow throughout the period, exacerbated by the re-emergence of Iran in 2016 as a key producer and an economy looking to local resources and foreign expertise to make its mark in oil supply. Iraq, a country whose economy must be supported given the hugely detrimental presence of ISIS, has seen continued growth. On this basis, Iraq’s refusal to make production cuts has seen oil prices tumble further – only days after commentators were debating the possibility of the end of low oil prices.
On the other hand, demand has increased – by 1.2 million bpd in 2016 – and the IEA expect a further 1.7 million bpd will be added to our global requirement in 2017. But OPEC’s output discussions – intended to cut output by just under 1 million bpd – would have little impact. Inventories are too high to be moved significantly by low level cuts. It may come down to cooperation between the Middle Eastern states and Russia to help pull OPEC through the crisis.
But hey, I’m ranting. One positive from the oil war which I’ve noticed quite markedly over the last few years is a renewed desire to look to sustainable power generation – electric cars, battery storage, renewable projects have all taken a more material role in the media and the development of technology to enable solar and wind generation has, arguably, benefited from the row between the US and Saudi.
Oil prices could be low for years. For the O&G industry, hope rests on massive supply disruption – either deliberate or through strife – but forward thinkers should take the chance to look at better alternatives.