INSIGHTS FROM AMPHORA
Riding out the pricing peaks and troughs:
maintaining oil and gas revenues
Oil prices fell from $50 to below $20 and back up to $35 in a matter of a few short weeks, creating global panic. The long-run equilibrium now looks likely to fall somewhere between $20 and $30 and prices may well remain low for at least 18 months. Maintaining oil and gas revenues in these turbulent times may prove a challenge too far for some.
A Reuters survey has found high levels of compliance with the OPEC+ agreement to cut supply. So far in May, the group delivered 4.48 million bpd of the pledged reduction, equal to 74% compliance, the survey found. Some observers believe cuts may have gone too far. Business Insider reports the CEO of one oil drilling company warning that “the US oil market is headed for a ‘mini-supply shock” with US oil prices braced to rise over 90% to $70 a barrel by the fall as the US has ‘over-cut production’.”
The US oil market is headed for a ‘mini-supply shock’ with US oil prices braced to rise over 90% to $70 a barrel by the fall as the US has ‘over-cut production’.
A further price war is likely. Hundreds of thousands of jobs are at stake. The US has gone from a net importer to a net exporter. Russia depends on a price point of $30-plus per barrel to balance its books, while Saudi Arabia is in an even more precarious position. Saudi Arabia is highly dependent on oil revenues, more so even than Russia, requiring an even higher price for the vast oil reserves that they have.
Price volatility represents a real threat to the survival of many oil and gas sector players. The average monthly volatility is usually around 3-10%. Recently, it has been as high as 50%. That simply does not work for a supply chain with a price lead of somewhere between 20 and 90 days.
In a market with such massive price fluctuations, how is it possible to maintain revenues and manage credit risk management? A single view of the commodity supply chain is vital. Amphora’s eBook ‘Agenda 2030: driving continued revenues in global hydrocarbons’ has more on achieving maximum visibility of the supply chain to achieve every possible efficiency.
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