Non-compliance by some OPEC members has raised the specter of an oil price war, one of Rigzone’s regular market-watchers observed Friday. Read on to learn more about the potential price competition for greater market share, along with other insights, in this review of oil market hits and misses from the past week.
Rigzone: What were some market expectations that actually occurred during the past week – and which expectations did not?
Tom Seng, Director – School of Energy Economics, Policy and Commerce, University of Tulsa’s Collins College of Business: Nigeria continues to export more than what their OPEC curtailment level is supposed to be, as reported by tanker-watchers. Saudi Arabia is in talks with the country to get them to agree to get in line and make up for the non-compliance so far. The Saudis have even threatened a price war if Nigeria and others, such Angola and Iraq, continue to fail to comply with the cartel’s agreed-upon curtailments. West Texas Intermediate managed to close out the week above $40, the highest level since early March.
Tom Curran, Senior Energy Services and Equipment Analyst in Equity Research, B. Riley FBR, Inc.: We conducted a call with Jon Donnel, Managing Director, Oilfield Services, at Great American Group on U.S. onshore oilfield services (OFS) capacity issues that reaffirmed that we suspected the landscape remains oversupplied and overcrowded. And those excesses are not cyclical, but structural. Great American Group is a B. Riley Financial subsidiary that provides appraisals, corporate advisory and valuation services and asset disposition assistance. Drawing upon the experience of the firm’s oilfield practice (GA OFS), Jon shared insights into key U.S. onshore supply-side themes. Among the salient points, we highlight:
- Frac excesses need more time to be fixed.
- ABL (asset-based lending) creditors are braced for borrowing base drops, but may still be surprised by pending appraisal valuations.
- A&D (acquisitions and divestitures) are picking up, with both public and private companies participating and private equity firms becoming more active all around.
- Companies are employing rare/creative methods to maximize liquidity and, potentially, attract mergers and acquisitions.
Rigzone: What were some market surprises?
Curran: Since June 1, operators in certain dry shale gas areas have been restarting idled compression units, some of which had been placed on standby status. That was a takeaway we gleaned from a virtual fireside chat we had with management at Archrock. The question is whether this data point marks the start of a trend that will see compression demand respond much faster in this cycle’s recovery, just like it did in its downturn. Historically, from the initial rollover in activity, it’s taken about six to nine months for customers to start returning compression units. This time, they began to release them with 60 to 90 days. The dramatically shortened lag is chiefly due to this cycle’s extraordinarily rare, if not unprecedented, systemic…
Read More: Oil Price War Could Be on the Horizon