Opinion

Decision time: ‘Low’ oil prices – or a new normal?


The oil price saw a big boost last month as the announcement of planned production cuts by Opec and other major producers raised hopes that the supply glut that has held prices down in recent years may be ending.

The oil price saw a big boost last month as the announcement of planned production cuts by Opec and other major producers raised hopes that the supply glut that has held prices down in recent years may be ending.

This is undoubtedly good news for oil companies and for exporting nations that have been under considerable fiscal strain in the last few years.

But while the short term looks rosier than it has for a while, futures markets suggest that the price is now close to its ceiling, with price rises further along the curve much more muted.

In truth, the majority of oil companies and producing countries have already accepted that there will be no sustainable return to $100 a barrel oil in the foreseeable future and are planning accordingly. They don’t see prices as ‘low’ – at least not in the sense that the phrase suggests a short-lived aberration – and, if anything, it is the days of $100 a barrel oil that now look abnormal.

The big question in recent years has been whether we would see production cuts that would correct low prices.

Following the Opec deal, perhaps we will see a change in focus this year.

For producers – and for the businesses in the supply chain – the big question will not just be about prices but also whether there is enough stability in the market to commit to big investment decisions or to consider M&A.

If companies really are convinced that there has been a stabilisation in the market we may be about to see a number of delayed decisions being made – something representing both risks and opportunities for companies in the sector.

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