The refrain from industrial gas companies during 2015 was how the steep and continued decline in crude oil prices — from $52.72 per barrel (b) on January 1, 2015 to $28.47/b on January 19, 2016 — caused a significant drop in demand in the oil and gas services sector.
The low natural gas prices and slow economic environment also contributed to this decline. The drop in prices caused cutbacks in spending in this market. The number of new wells US operators drilled onshore fell by half in 2015 compared to 2014, in line with the same year-on-year decline in rig counts, from 1,782 to 673. The news was even worse in a year-on-year comparison for the fourth quarter of 2015 where rig counts were down by 63 percent. If the current low price levels are maintained through 2016, what will be the effect on oil and gas enhanced oil recovery (EOR) and fracturing projects, and will these projects experience a drop in pace and reduction in the number of projects similar to the one experienced from 1980s to the mid-1990s when oil prices dropped?
The US Energy Information Administration (EIA) estimates that global oil inventories increased by 1.9 million b/day (d) in 2015, marking the second consecutive year of inventory builds. This oversupply has contributed to oil prices reaching the lowest monthly average level since mid-2004. Inventories are forecast to rise by an additional 0.7 million b/d in 2016, before the global oil market becomes relatively balanced in 2017. The first draw on global oil inventories in 15 consecutive quarters is expected in the third quarter of 2017. This estimate means we can look forward to continued low oil prices and lower demand for industrial gases, equipment, and services in the oil and gas services sector.
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