A fresh wave of investment in the oil sector is expected to drive new growth from 2020 onwards, according to consultancy Westwood Global Energy Group.
The findings are published as part of Westwood’s Upstream Investment Outlook report, and suggest that the outlook for breakbulk demand may be beginning to improve as firms start to consider financing for the next cycle of projects.
In the long-term, “the fundamentals for recovery look strong. The lack of investment over 2014-2016 had weakened supply growth forecasts, to the point where it is likely that a significant wave of investment will be needed in the first half of the next decade,” said Steve Robertson, head of OFS Research.
OPEC Limits Remain Short-term Risk
Despite the positive outlook for the longer term, the next few years still pose major risks for oil sector investment end to oil production limits in 2018 remains the largest threat to the continued industry recovery.
The failure to extend current OPEC production cuts when they end in March 2018 could easily tip the market “back into oversupply,” according to Robertson, and without commitment to extend the cuts a further nine months risk undoing recent gains.
“As we move into the last quarter of 2017, we expect little shift in macroeconomic conditions before 2018. However, we will be watching the OPEC meeting at the end of November with keen interest. Adherence to quotas, and the decision to extend cuts in OPEC’s 2018 production, is arguably the largest risk to the continued industry recovery going forward, certainly in the short-term,’ Robertson added.
Aramco IPO, Fuel Switching Threats
Analysts from Westwood also note that the potential Saudi Aramco initial public offering may impact the wider sector, but that it has motivated Saudi Arabia “to lead the way” on production cuts and focus is expected to remain on the country’s leadership in the run-up to he expected share offering next year.
Looking further forward, Westwood expects the greatest danger in the longer term to come from further fuel-switching as the transport and energy sectors switch more resources from fossil fuel to renewable.
“While the threats of fuel switching should not be understated, particularly with the emergence of viable electric vehicles and increasing battery and renewable energy source efficiency, the need for oil as part of everyday life is unlikely to be significantly eroded before 2030,” Westwood states.
Photo: Renewed upstream investment may drive breakbulk demand. Credit: Wikimedia