Raymond James comments on oil market - Mar 21
Posted: Tue Mar 21, 2023 3:15 pm
Right at the outset, we want to acknowledge that macroeconomic demand-side risks have become front-and-center for the oil market, and rest assured, we will provide an update in the near future on the latest macro concerns. Today, though, we want to address a particular aspect of the supply side of the equation. One of the questions we hear is: why, at a time of healthy oil prices (even after the oil market’s recent selloff), are oil and gas companies drilling so much less than they did during the commodity boom of 2012-2014?
Based on our capital spending survey of 50 top oil and gas companies around the world, the final results of which will be published soon, 2022 was at approximately $360 billion, down 40% from the all-time high of $608 billion set in 2013.
The primary explanation is that, having been burned by two oil crashes within a decade, management teams have internalized long-standing shareholder demands for greater capital discipline. This point is applicable just about everywhere in the world.
A second factor — this one most prevalent in Europe — is that ESG funds are pressuring companies to “leave it in the ground”, i.e., produce less and therefore drill less.
Today we will zoom in on a third factor, which is more below-the-radar. The fact of the matter is that the industry has lost people, including some of the most highly skilled ones. Even if (hypothetically) companies wanted to get back to the levels of capital spending a decade ago, it would be practically impossible due to insufficient labor. As discussed in the Relaunching Coverage of Oilfield Services report from December 2022, worker availability represents a constraint for many job functions in the industry. Case in point: petroleum engineers.
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MY TAKE: IEA's demand forecast is too low and oil supply growth will be very slow to return. So, in just a few months the global oil market will be very tight.
Based on our capital spending survey of 50 top oil and gas companies around the world, the final results of which will be published soon, 2022 was at approximately $360 billion, down 40% from the all-time high of $608 billion set in 2013.
The primary explanation is that, having been burned by two oil crashes within a decade, management teams have internalized long-standing shareholder demands for greater capital discipline. This point is applicable just about everywhere in the world.
A second factor — this one most prevalent in Europe — is that ESG funds are pressuring companies to “leave it in the ground”, i.e., produce less and therefore drill less.
Today we will zoom in on a third factor, which is more below-the-radar. The fact of the matter is that the industry has lost people, including some of the most highly skilled ones. Even if (hypothetically) companies wanted to get back to the levels of capital spending a decade ago, it would be practically impossible due to insufficient labor. As discussed in the Relaunching Coverage of Oilfield Services report from December 2022, worker availability represents a constraint for many job functions in the industry. Case in point: petroleum engineers.
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MY TAKE: IEA's demand forecast is too low and oil supply growth will be very slow to return. So, in just a few months the global oil market will be very tight.