Energy Outlook Q2 2015

Time of Market Volatility, Time for Strategic Decisions

BY SEAN EVERS, MANAGING PARTNER, GULF INTELLIGENCE

  • March-01-2015
Time of Market Volatility,  Time for Strategic Decisions

From steep decline to partial rebound, global oil market volatility remains at a multi-year high amid a mixed outlook for crude supplies and demand.

On the supply side, there are those analysts who think the market will remain oversupplied through at least the first half of 2015 despite today’s fragile geopolitical environment, while falling global rig counts and reduced exploration budgets at oil firms suggest to others that the glut may be overcome faster.
On the demand side, the picture remains equally mixed. China is slowing down, Russia heading for recession, Japan heading nowhere, and the eurozone continuing to display signs of severe weakness. The picture is somewhat brightened by growth prospects in the U.S., whose economy is now due to grow faster than previously expected at 3.6 percent this year, according to the International Monetary Fund. But even with the sharp oil price decline, which represents a net positive for global growth, the world’s economic outlook remains subdued.
It is at times like this that strategic decisions are being made. Gulf OPEC producers have done so by slashing oil prices to Asia and boosting export volumes at the same time in a bid to defend critical market share. It is probably a wise move. For, as we all know, the global energy system’s centre of gravity continues to shift towards Asia even as economic growth in parts of the region is slowing and world oil markets face a supply glut due to rising shale output in the U.S. Today, Asia is the only major oil consuming region in which Gulf states dominate supplies – Gulf OPEC producers don’t want to risk giving this up at a time of intensifying competition. 
Strategic decisions will also have to be made on an operational level. With oil prices in the $50s-a-barrel space, there is an ever-greater need to enhance efficiencies and optimize operations. Rapid advancements in and widespread application of new technologies such as big data and analytics means companies are starting to capture these opportunities on an increasing scale, also in the Middle East. But with the increased interconnectedness of oil and gas infrastructure also come concerns over cyber security, which has become a clear and imminent danger, and threatens critical energy infrastructure all over the world. Strategic decisions and investments will have to be made on all these fronts.