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Editorial comment

The oil price took a bit of a tumble last month. Naturally, this occurred just after I’d finished writing my comment for our March issue wherein I stated that things were “still looking relatively positive for the global upstream industry.” I am writing this comment with my fingers firmly crossed…

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The sudden drop (which has seen WTI only just scrape back above US$50), was caused by an unexpected surge in US inventories – analysts had been expecting a rise of 2 million bbls; what they got was a rise of 8.2 million bbls, marking the ninth consecutive week of rising US crude inventories. According to the U.S. Energy Information Administration, the unexpectedly large rise was caused by a combination of reduced refinery output and increased imports.1

Since then, things have recovered somewhat. Indeed, whilst US inventories might be rising, there are signs that this is not the case elsewhere and that OPEC’s cuts might be bearing fruit. According to information given to the Financial Times, crude oil being stored offshore or transported by supertankers has dropped by up to 16% since 1 January.2 Fabio Kun, CEO of Vortexa, believes that coverage given to rising US production is overshadowing news of declining supplies elsewhere; the FT quotes him as saying: “Water is where the market changes first. We think this is some of the first evidence that supply cuts are having a major effect […] The US is producing so much that their stocks level is still going up, but the rest of the world is not reflective of that. The US has been disconnected because of the amount of oil that’s being produced there.”3

According to Vortexa’s data, as of 3 April, seaborne transit volumes of crude amounted to 759.6 million bbls and 52 million bbls was held in floating storage. By comparison, the company’s figures for 1 January, show 899.4 million bbls and 78.4 million bbls respectively.4

Whilst seaborne transit and storage volumes can only ever provide a partial image of the industry, Vortexa’s figures certainly offer a positive sign. There are positives to be found elsewhere in the industry too. A recent report by Wood Mackenzie argues that the downturn has driven the deepwater industry to echo the shale business and become more cost-competitive, with some of the most attractive projects competing with US tight oil plays.5 Angus Rodger, Asia-Pacific upstream research director at Wood Mackenzie, said: “We are at last beginning to see the first signs of recovery in deepwater, driven primarily by cost reduction and portfolio high-grading. Projects in the US Gulf of Mexico in particular have made significant strides, with many reducing breakevens from above US$70/boe to below US$50/boe.”6 However, the leaner nature of the deepwater industry has meant that many independents have had to leave the sector, leaving the majority (>70%) of pre-FID projects in the hands of just 8 companies: Petrobras, ExxonMobil, Chevron, Shell, BP, Total, Eni, and Statoil.7

As before, it looks like there is cause for cautious optimism; the industry faces enormous challenges, but there are still opportunities out there. The Oilfield Technology team will be attending OTC on 1 - 4 May (Stand 2776); we’d love to hear your thoughts on the technologies and innovations that will keep the industry going!


  1. ‘Oil settles at $50.28, plunging to nearly 3-month low after US crude inventories rise for 9th straight week’ -
  2. ‘Oil’s seaborne picture suggests Opec cuts taking effect’ -
  3. Ibid.
  4. Ibid.
  5. ‘Where next for deepwater projects?’ -
  6. Ibid.
  7. Ibid.

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