2017 to present oversupply and compliance issues for Oil

2016 turned out to be a pretty good year for the oil price and the end year comparisons dont tell the whole story about the lows in January and February. WTI ended up with a gain of $16.68, +45% whilst Brent rose $18.85 or 52%. This mornings price are better again, WTI is $54.99 and the new Brent contract is trading at $58.10.

If you look at the efficiencies that the industry has made in the last couple of years then the improvement in margins, even since $115 oil, must be meaningful. Some companies have even benefited from the strength of the dollar, no surprise that BP through word and deed has declared the worst over.

2017 will present obstacles such as compliance and oversupply, at least in the first half but as the year rolls on should get better. Demand should exceed supply as we get into the second half of the year, this will encourage adherence to quotas as monthly cheques get fatter. Also the now, $1.5tn of capex cuts, will start to bite and will last for 4-5 years, even the US shale industry wont be able to fill that gap. With BP leading the way, by encouraging partners at Mad Dog 2 to go ahead with a budget slimmed from over $20bn down to sub $10bn, it has seen the writing on the wall but meaningful production here is unlikely before 2022 even with instant approval.

Who knows, Saudi taking up any cheater’s slack this year might prove to be very profitable down the line…And as for demand, if you had any serious pick up from China or India or others, who knows what might happen…