US oil industry coming back cautiously

NEW YORK: The US oil industry is feeling guarded optimism going into 2017 as it pivots from a brutal two-year slump prompted by crashing crude prices.

As the new year kicks off, industry insiders describe a tentative recovery, with some low-cost drilling basins starting to pick up even while others remain depressed.

The downturn, among the worst since the 1973 Arab oil embargo, led to bankruptcies, layoffs of hundreds of thousands of workers and a significant pause on the American shale boom.

Energy producers have been cheered by the election of Republican Donald Trump, whose cabinet picks include oil industry allies like climate- change skeptic Scott Pruitt to head the Environmental Protection Agency and ExxonMobil chief executive Rex Tillerson as secretary of state.

“Operators are still being guarded with their money,” said Jason McFarland, president of the International Association of Drilling Contractors in Houston.

“But certainly we’re seeing a loosening of the grip on investments as the price of oil rises.”

Even more important, sentiment got a boost from the November 30 agreement by the Organisation of the Petroleum Exporting Countries ( OPEC) to cut production to address a supply glut that had threatened to push oil prices back to multi-year lows.

After the OPEC deal, “it is meaningfully different in sentiment,” said David Pursell, a managing director at the Houston energy investment bank Tudor, Pickering, Holt & Co.

“Before November 30, this was like the Bataan Death March,” he said, referring to the grim outlook in the industry.

Now, “People are cautiously optimistic, which is light years from where we were eight weeks ago.” US oil prices, which tumbled to close to US$ 25 a barrel a year ago, closed at US$ 53.99 a barrel on Friday.

Part of the industry’s hesitancy is due to skepticism about whether OPEC members and countries outside the cartel, such as Russia, will actually comply with the agreed production cuts.

And if the cuts are implemented, there remains the question of what will happen if the agreement is not renewed after its six-month duration.

OPEC appears to be signaling that “high- cost producers should not take for granted that they will receive a free ride to higher production,” the International Energy Agency said in a report last month.

“These high- cost producers, who assume that the cuts at the very least guarantee a floor under prices, might think twice before taking the risk of sanctioning new investments.”

Other unknowns that will affect the market include the path of US consumption in the expected fast- growth Trump era; whether Indian demand will stay high; and how the ever- evolving Chinese economy will affect its thirst for petroleum. — AFP