BAKU, Azerbaijan, May 21
By Leman Zeynalova – Trend:
It will be hard to repeat the run-up of 2000–14 in oil and gas prices, Trend reports with reference to McKinsey and Company.
“While OPEC cut oil and natural gas liquids production by 5.2 million barrels per day (bpd) since 2016, shale added 7.7 million bpd over this timeframe, taking share and limiting price increases. When the industry no longer needs a decade to find and develop new resources, but can turn on ample supply in a matter of months, it will be hard to repeat the run-up in prices of 2000–14,” said the company.
McKinsey and Co. notes that historically, price wars wipe out poor performers and lead to consolidation.
“But the capital markets were generous with the oil industry in 2009–10 and again in 2014–16. Many investors focused on volume growth funded by debt, rather than operating cash flows and capital discipline, in the belief that prices would continue to rise and an implied “OPEC put” set a floor. It hasn’t worked out that way.
Under most best-case scenarios, oil prices could recover in 2021 or 2022 to precrisis levels of $50/bbl to $60/bbl. Crude price differentials in this period are also likely to present both challenges and opportunities. The industry might even benefit from a modest temporary price spike, as today’s massive decline in investment results in tomorrow’s spot shortages. In two other scenarios we modeled, those price levels might not be reached until 2024. In a downside case, oil prices might not return to levels of the past. In any case, oil is in for some challenging times in the next few years,” said the company.
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