Analytical Instrumentation

  • Can the Oil Industry Stay Investable?

Can the Oil Industry Stay Investable?

Nov 15 2019 Read 301 Times

In the face of low crude prices and sinking demand, the oil industry is gearing up for its next major challenge - how to stay investible in a volatile market. Recent WoodMackenzie Energy Summits held in London and Houston offer a glimpse of the cautionary mood currently gripping the oil and gas industry, with analysts concerned that plummeting prices are taking their toll on the bottom lines of energy companies. As a result, investments are set to take a hit.

Falling demand sparks concerned over energy investments

Held on each side of the Atlantic, the summits spotlighted common themes and newsworthy topics within the oil and gas industry, including falling oil demand. This year will see the energy industry hit with the lowest global demand growth since 2011 - a mere 0.7 million barrels per day. Growing trade tensions between the US and China are a major driver, with the International Energy Agency (IEA) recently slashing its predictions for global oil demand growth, a move sparked by fears of a global recession.

"Now we are starting to see that confidence in demand is taking over and that is the main driving factor behind the current state of the oil market," warns Neil Atkinson, head of the oil industry and markets division at the IEA.

A cocktail of factors blamed for depressed gas prices

Another underlying theme was perplexity over why crude prices have remained alarmingly low, despite the recent attacks on Saudi Arabian oil facilities. The assaults on Aramco's Abqaiq and Khurais plants, two of the country's largest facilities, threatened to wipe around 5% of the world's global oil supply off the market. Though despite the production blow and the potential danger it posed to global oil supply, prices failed to recover. A surplus of Permian tight oil used to create zero-cost gas, as well as failure by US independents to deliver promised returns, will also play a role in depressing gas prices.

Rebuilding trust and confidence is key

In response to falling demand, low prices and broken promises, investors are tightening their belts and in some cases, extracting cash flow and dividends. If producers hope to retain investment, analysts say they must focus on rebuilding trust and confidence. To recover, oil and gas producers must also address concerns over climate change and air pollution. Experts warn the energy industry needs to find a way to champion itself as a solution, not the root cause of the problem.

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