Crude glut to continue into 2016 says Gaffney, Cline & AssociatesNews // August 21, 2015
Energy consultants Gaffney, Cline & Associates says the glut of oil in the market looks likely to continue into 2016.
In its latest report on the market, dated 14 August, Gaffney, Cline & Associates aid the rig count had remained essentially flat as operators continued to defy crude price signals. Crude oil slipped below US$42 a barrel (WTI) at one stage, the lowest intraday price since March 2009.
Total US oil stocks remain above their five-year highs while US oil production continues to decline.
"Despite the shale sector's small market share, it has disrupted the entire oil industry because it has accounted for more than half of the increase in global supplies since 2010," said the company. "Shale is more expensive to produce than oil from the giant conventional fields of the Middle East but cheaper than deepwater megaprojects, and competes directly against areas such as the North Sea and Canada's oil sands. Large integrated majors are tied up in multi-year mega projects that cannot be started or stopped easily, and independent E&Ps would simply go broke if they cut production.
"World oil demand is growing at its fastest pace in five years, but global oversupply is looking like it will continue through 2016, based on the latest EIA data. While a rebalancing has clearly begun, the process looks to be longer than expected, as a supply overhang persists through 2016 and global inventories are likely to increase.
"Long term the price of crude oil will be set at the cost of the marginal barrel plus a reasonable profit for the E&P industry," said Gaffney, Cline & Associates. "Additionally, that price must reflect a reasonable profit for the oil service industry. In the short term, while drilling activity has slowed (albeit currently flat), production remains flat and crude oil price continues to decline because of the oversupply that just does not seem to want to go away."