Insights by Nitor

Oil & Gas: How 2016 Events will Impact Procurement in 2017

Posted by Sean Sollitto on Dec 13, 2016 11:17:29 AM

Throughout 2016 there were many significant events that shaped the current state of the Oil & Gas industry.  As the price of oil continued to plunge, world events hinted at a very slow recovery in the sector. Projects were put on hold, headcounts slashed, but production seemed to continue unabated. Some of the events that have had or will have a major impact in this space are:

 - "Brexit" shook up the EU, continued financial chaos in Italy and Greece, and a general fear of the unknown led to declines in European markets. These events drained demand for oil, putting increased downward pressure on crude prices.

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Topics: procure to pay, procurement consulting, oil & gas

OPEC Has Lost The Shale War

Posted by Sean Sollitto on Dec 5, 2016 9:23:58 AM

It's tempting to see the recent announcement that OPEC will cut production as having a positive impact on the price of oil.  Taken out of the context of reality, OPEC's historical influence is huge - just the mere announcement of a production cut would send prices up.  

But the reality is that OPEC has lost its war against shale producers, and is trying one last time to exert control over the market.  Yes, we will see a (very) short term upward tick in the price per barrel, but any price move will not be sustainable. American oil giants are flush with cash, and eager to jump back into the game at the right price. Let's further assume that all of the OPEC member states adhere to the production cuts, except of course those that have already negotiated exemption clauses (Iran, Libya, Nigeria). Let's further assume that Russia agrees to halt production increases.  As the price moves up towards $55-$60, U.S. shale producers will be incentivized to restart production.  All of those capped wells will come online, in less time than it takes to sign another deal.  Any price gains from the production cuts overseas will be swallowed up by the increased supply from domestic shale production. OPEC is facing a losing battle, and their only way out is to invest in more production capacity.  

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Topics: oil & gas

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