The oil industry has endured a torrid couple of years, struggling to adapt to the significant short-term challenges of the Covid-19 pandemic while simultaneously trying to respond to the changing nature of global energy requirements. Recovering oil prices and the rising number of rigs in the US would suggest that the sector is at least on the road to getting it right, suggests oil expert Kay Rieck.
The oil industry continued its recovery this week, overcoming the US$70 per barrel mark for the first time since 2019. The positivity is being driven by several factors, including the continued acceleration of the global vaccination programme making people start to have serious conversations about a return to global travel. Alongside this is the prospect of continued sanctions on Iran which will continue to constrain its ability to export oil.
Brent crude futures were trading at nearly US$73 per barrel in the middle of the week, while West Texas Intermediate futures rose to their highest level since the autumn of 2018. With Organization of the Petroleum Exporting Countries and its allies, known collectively as Opec+, keeping a tight rein on production from the Middle East. Some analysts are predicting that prices could reach US$80 per barrel by the autumn.
On Tuesday, the Energy Information Administration (EIA) in the US amended its fuel consumption growth forecast for this year, suggesting that demand would rise to 1.49 million barrels per day (bpd), up from 1.39 million bpd in its previous forecast.
This would be superb news for an industry that has been battered by unprecedented economic headwinds at the same time as increasingly critical headlines, which have combined to create a unique set of long- and short-term challenges that need to be responded to.
Consolidation has continued in the sector as firms struggle to come to terms with the changing landscape and look to join forces. Following the recent US$17 billion merging of Cabot Oil & Gas and Cimarex Energy, Independence Energy and Contango Oil & Gas Co announced this week that they will merge in an all-stock deal, creating an oil and gas company valued at around US$5.7 billion.
Despite the flurry of consolidation, oil field activity continues to recover from the extremes of 2020, with the number of oil and natural gas rigs in the US rising for the tenth consecutive month in May, according to energy services firm Baker Hughes. What the growth means is that the number of active rigs in the US has returned to April 2020 levels, right at the point that the economic ramifications of the global pandemic becoming abundantly clear.
The growth in the number of rigs has relevance because it suggests that US output is likely to rise over the next few months as these projects enter their production phases.
As I have discussed several times over the last few months, there are undoubtably challenges ahead for the natural resources sector, but it continues to be an attractive place to do business.
About the author
Kay Rieck has been active on the investment side of the oil and gas sector for more than two decades. Starting his career as a financial adviser and stockbroker on the New York Stock Exchange, he quickly developed an interest in natural resources and associated assets, building his expertise with investment banking and asset management roles at the New York Board of Trade and the Chicago Board of Trade. Utilising his exceptional network of global contacts, he started his first exploration and production company in the US in 2008, selecting investments across the Haynesville Shale, Permian basin, Eagle Ford shale, Dimmit county and elsewhere that offered exceptional prospective returns.
