Oil prices increased roughly 60 percent since late January. However, the global over-supply of oil worsened in March. According to data from the Energy Information Administration (EIA), the net surplus (supply minus consumption) increased to 1.45 million barrels per day in March. In February, the surplus increased 270,000 barrels per day. This is not a positive signal for an extended price recovery.
On the public markets, the Energy industry started out in decline with the rest of the market, but picked up significantly heading into the second quarter.
If more exploration and production companies restructure under bankruptcy protection, attractive assets may be available to the survivors at a discount. As many as one-third of US oil and gas producers may seek bankruptcy protection by mid-2017 if oil prices remain near current levels, according to a forecast by Wolfe Research reported by The Wall Street Journal. A host of factors, from China’s economic slowdown to the dollar’s rise to producers themselves continuing to flood the market, have pushed oil prices lower and lower since mid-2014. Prices below $40 per barrel are viewed as unsustainable for the vast majority of US operators, especially those with significant debt loads.
With oil and gas prices remaining well below highs reached in mid-2014, major companies are cutting back on new exploration and drilling fewer wells. Only six new oil and gas development projects were approved in 2015, according to research from Morgan Stanley reported by The Wall Street Journal. Normally companies race to add to their reserves through exploration as fast as they pump oil from the ground. But the current glut of supply and corresponding low prices are discouraging companies from investing in exploration. The number of drilling rigs in the seven key US tight oil and shale gas regions –sources of the vast majority of recent production growth – has declined sharply, according to the US Energy Information Administration.
Posted by Roy Graham.