The oil sector is restructuring after the collapse of oil prices and opportunities may emerge for larger players wishing to snap up distressed companies and expand into crisis-hit producer countries, according to key industry players.
An oversupply of oil in the market, caused by the boom in crude extracted from US shale rock, has contributed heavily to crude prices crashing 60 percent in value in the six months to January.
In response, the oil sector has begun to reorganise, as it has done every ten years on average. Big oil companies have begun to slash capital spending for the coming year. French multinational Total recently revealed a 30-percent cut in its exploration budget.
But the current environment still provides a chance for them to possibly buy smaller struggling rivals at bargain prices, suggested participants at the recent International Petroleum Week in London.
- 'Vultures gathering' -
In the United States, small producers have been hit particularly hard.
"There is an enormous (cash) liquidity squeeze in the US as we speak and it will come to a crescendo in the middle of this year," said Anthony Hayward, chief executive of Anglo-Turkish producer Genel Energy.
This will mean "a lot of distress" among small operators in US shale, but will create growth opportunities for those with capital and capacity, said Hayward.
"The vultures are gathering."
Opportunities are also emerging globally, including in OPEC producers Iraq and Venezuela, which will need funding to bridge the shortfall in their revenues from collapsing oil prices.
"For the major companies this is now a great time of opportunities, those who are brave will seize the moment and will be able to acquire very good assets at knocked down prices," Hayward said.
Norwegian oil major Statoil also sees the drop in oil as a source of opportunity, particularly on the trading side.
"I think it is challenging for an upstream company like Statoil to cope with these changes," said Rune Bjornson, senior vice president at the company.
"But at the same time especially on the market and trading side which is becoming more and more important, it gives the market new opportunities."
- Demand side -
For Ian Taylor, head of oil trading giant Vitol, the oil sector may be overlooking the demand side of the story.
"We had an incredible year of growth last year, a two million barrel per day (bpd) of non-OPEC increase in production... and we are all forecasting we are going to get another million barrels per day of growth this year," Taylor said.
"However the real story that we are not talking about very much in the industry is the other side of the equation: demand."
Taylor is unsure whether demand will rise to meet soaring production levels. He added that he was not convinced by analysts' predictions of growth in demand by a million bpd or more this year, after forecasts for 2014 proved too high.
"We are all trying to work out when the US production is going to slow down," he said.
For now production is increasing, despite a drop in the rig count in the US. Production reached 9.226 million bpd last week, the highest level since 1983.
While crude prices have been stabilising, Hayward of Genel said that prices were set to remain weak for the next year or two amid market oversupply.
"A lot of oil can (still) come to market at less than 80 dollars a barrel," he said.
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Maintained and developed by Arabs Today Group SAL.
All rights reserved to Arab Today Media Group 2021 ©
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