Predictions about the near-term future of the oil & gas industry are a lot like coming home after Halloween trick-or-treating – you often end up with a mixed bag. You might come up with a mouth-watering Hershey’s chocolate bar courtesy of everyone’s favorite neighbor down the street. On the other hand, you may pull out a handful of candy corn – or worse, raisins – from the guy who never mows his lawn and has a pit bull chained outside his door. So it goes with oil & gas industry predictions. You sometimes just never know what you’re going to get.
Reading the news today you can find stories that the industry is about to take off (again). You can just as easily find stories that say the entire oil & gas sector is moments away from total collapse. As oil & gas are commodities, they tend to be volatile in price. However, as the world still needs and uses fossil fuels, they will not be going away any time soon, volatility or no volatility.
A savvy market watcher knows this and doesn’t pin hopes on short-term fluctuations, but on long-term outlooks and trends. Therefore, despite the wide variety of opinions about where oil & gas are going, recent trends appear to support a stronger domestic energy market, not only for drillers and producers, but for those who service each of them as well.
Just a little over two and a half short years ago, oil prices nearly collapsed due to oversupply. Nine years ago, prices shot into the stratosphere thanks to high demand. Such wild short-term swings can be a long-term planner’s worst nightmare. A project economically feasible at $100 a barrel can be a company-killer at $30.
While oil & gas companies haven’t gotten better at price predictions, they have greatly improved their ability to weather these wild price swings. Thanks to technology, they have perfected ways to lower significantly their costs of finding and producing crude oil. This applies even in challenging locations (deep-water offshore or the Arctic) or in difficult-to-extract-from formations (shale and oil sands). Even in lower-price market conditions, they can still afford to explore and produce, as well as hire additional workers. In similar situations in the past they would have had to cut drastically back.
This is not only a good thing for oil & gas companies and their employees, it’s great for companies and people in the oilfield service industry. These companies perform a vital role in supporting drilling rigs and production platforms on and offshore, providing everything from pipe and logging equipment to transportation, catering and even soap.
These companies can range in size from giant multinational conglomerates to tiny mom & pop shops. However, while names like Halliburton and Schlumberger dominate the headlines, it’s the small businesses that do a lot of the work and have the most to gain when times are good, or the most to lose when they turn bad. When oil & gas companies can survive – or even thrive – in a market like today’s, they can and will continue to spend money on oilfield services. This keeps thousands of companies big and small productive and profitable.
U.S. oil production has recently surged past 9 million barrels per day. A lot of this surge is due to more technologically efficient and cost-effective operations than just a few years ago. One prominent analyst sees no reason why this most recent boom can’t last for several more years, even if oil prices fall due to oversupply or service prices increase due to rising demand.
Such a scenario could mean good times are in store for a revitalized services industry stunned by the sudden oil price collapse in 2014 and 2015. So with oil & gas companies growing ever-more confident they can and will make money, even in a low-price/high-cost market, that trick-or-treat bag in the first paragraph sounds like it will be yielding something good in the months ahead.