Over-production will continue to cause a significant global supply glut in the North American Oil & Gas market, which means US oil prices will stay low for the foreseeable future, according to a new report from global consulting firm Maine Pointe. Meanwhile, a report by the National Center for Policy Analysis (NCPA) predicts prices could rebound to $82 in the next two and half years.
“With oil prices staying low, the only way companies can drive profits is to drive down costs,” said Steve Hamilton, co-author of the report and Executive Vice President, Oil & Gas at Maine Pointe. “Oil companies are looking deeper into their value chain to reduce their direct spend.”
Ian Hedding, co-author and Executive Vice President, Oil & Gas at Maine Pointe, added “In an effort to lower costs, many of the senior executives we have met with are already looking at areas that they have traditionally missed from an operational or process perspective.”
In the NCPA report, Senior Fellow R. David Ranson predicts the oil-gold price ratio should converge over time, though the movement will be slow. However, it “would be reasonable to expect the price of crude to rise at an annual rate of $8 a barrel over the next 12 months,” Ranson says.
Examining US oil prices relative to gold prices “accounts for the long-term decline in the value of the dollar and allows us to recognize more clearly the effect of supply, demand and public-policy factors that influence the price of petroleum,” he says.
The NCPA report suggests that blame for the 2014 collapse in US oil prices could be placed on changes in the purchasing price of the dollar and political maneuvering. The sudden drop was often attributed to changes in supply and/or demand.
“It is true that a shift in supply or demand will change prices in any market; however, not all market-price movements are necessarily due to a change in market supply or demand—especially in the case of prices for commodities as highly political as crude oil,” says Ranson. “Public policy makers may intervene in oil markets in pursuit of national economic or security goals.”
To read the Maine Pointe report on US oil prices, “The New Reality in the Oil & Gas Industry,” go here.
To read the NCPA report on US oil prices, “The Changing Price of Oil Relative to Gold,” go here.