Oil Price Will Increase in Next 'Few Months'

Oil prices will only stay at current levels for the next few months, according to Stuart Amor, the ex-head of oil and gas research at financial advisory firm RFC Ambrian.

Amor, who made the statement in a presentation at the Finding African Oil event in London Monday, which was attended by Rigzone, said that around 10 percent of non-OPEC supply is cash-flow negative at the operating level in the low oil price environment affecting the industry today.

“At $30 per barrel, which is where we are today, about ten percent of non-OPEC supply is cash flow negative at the operating level, so I don’t think the oil prices can stay down here for more than a few months. If they do, then some of that supply is going to get shut-in,” Amor said, addressing oil and gas delegates at Finding Petroleum’s conference.

In spite of the decreasing oil price, Amor suggested in his presentation that the oil and gas industry wouldn’t see an increase in M&A (merger and acquisition) transactions until the volatility of crude prices subsided:

“The biggest determinant in the number of M&A transactions is the commodity’s volatility. Highly volatile prices, particularly at the long end of the curve, and we’ve seen a lot of that over the last couple of weeks, make it much harder for buyers and sellers to agree prices. So we live in an uncertain world and it’s got a whole more uncertain in the last two weeks. Indeed the recent spike in crude volatility hasn’t been seen since the height of the global financial crisis in 2008. That will need to change for a lot of M&A transactions now to occur.”

Amor held the position of head of oil and gas research at RFC Ambrian for almost four years, covering several Africa-focused mid-cap and junior oil companies including Tullow Oil, Ophir Energy, Seplat and African Oil Corp. He was previously the head of global equity research at ING.

A graduate in journalism from Cardiff University, Andreas has eight years of experience as a business journalist. Email Andreas at andreas.exarheas@rigzone.com

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Anthony Hall | Feb. 8, 2016
I am interested in the choice of metrics, and the location and audience for the address. It is becoming rather tedious from the service company-perspective as the would-be soothsayers trot out their informed route back to the fruitful face of the most recent oil patch (and arguably global financial) paradigm - the refrain of the rationale of concentration of capital, backed by hopes of growth and a return in M&A activity. Sometimes it feels like the likes of Mr Amor self-servingly advocate a future that is both myopic towards and threatened by concepts like real value creation (as opposed to growth by acquisition) and have no appreciation for the value of real hard work - never mind the transformation and sustenance of communities.

CW Minshew | Feb. 2, 2016
Two viewpoints [and] two facts, but neither is exactly known at this time. The high-cost shale wells have relatively low (less than $20/bbl) operating costs; the ability of the OPEC producers & Russia to ramp-up production is questionable. Venezuela is maxed out; Iran should be able to pump more - but over 300K Bpd is questionable. Do they have oil or condensate? Does it matter? Low prices bring more market. We will see incremental demand to soak up production barrels.

Daniel Pearson | Jan. 29, 2016
With 1/3 (32mmbpd) of current world production of 96mmbpd coming from expensive shale oil and tar sands, and expensive deep-water sources, we can expect to see production cuts. These expensive sources of oil will be the projects that have had $380 billion of CAPEX cuts since 2014. The latest projects to be cut or deferred from 2016 to 2020 amount to CAPEX cuts of $170 billion. With little spare capacity once supply and consumption balance, we can expect a sharp increase in crude prices. This is a new situation that the oil industry is dealing with. Much un-like the 1980s when there was 10 mmbpd of spare capacity. Today we do not have the 2-3 mmbpd of spare capacity that Saudi Arabia typically held in order to moderate crude prices. This should be interesting, and US shale oil which has been free cash flow negative even at high crude prices will not suffice as the new spare capacity. Will be interesting.

Fred Czubba | Jan. 25, 2016
Apparently Mr. Amor missed his classes of Economics 101 related to Supply and demand. Unless the global economy picks up and according the forecasted GDP which clearly indicate that the global economies are averaging 2,3 % and the giant elephant in the room China is struggling to stabilize a very volatile and insecure economy. If Venezuela ever came on line again in a big way ,Russia can pump a bit more ,the Iranian desperately need the cash you could very easily see an additional 1.5- 2 million bbls enter the market ,,where by the way the game has changed from high prices to market share. My take on this situation is that $50 /bbl will be the new normal.


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