by Pete Cook, President, Petroleum Connection
A couple of recent articles indicate that there are reasons for optimism in regards to the price of oil and the oil & gas market. In addition to crude oil having its best day since March 2009, two articles comment on the state of the oil market being better than most people think (positive news for today) and good news for the future of the oil patch (Raymond James analysis suggesting it will come “roaring back” in 2017). The situation might not be as dire as it sometimes seems today.
The common knowledge suggests Saudi Arabia is in the driver’s seat in regards to oil pricing, but it has become pretty clear that they cannot afford depressed crude prices long-term. They may be forced to lower their supply to reduce their record deficits (an estimated 20% of their GDP in 2015). Oil in Saudi accounts for about
80% of government spending, so the low prices are really hurting them. Saudi Arabia (and OPEC) may be forced to change their approach. U.S. oil patch continues to produce despite low prices because it needs cash flow. We’ll who blinks first.
Make no mistake, the U.S. oil patch is hurting, but there are reasons for optimism.