- On Feb 16, Saudi Arabia, Russia, Qatar and Venezuela signed a cap on production, at near record high production levels, in a bid to bring oil supply back in line with demand and raise prices that hit 12-year lows this year. On any given day, global oil supply of about 96 million barrels outstrips demand by almost two million barrels.
- The production cap is unlikely to make a significant immediate difference to the current supply glut, however is symbolic of the desire to change depressed commodity values, market response has been proportional with oil moving to upper thirties.
- March 15th, Qatar announced that it would host a meeting on April 17 in Doha for oil producers both inside and outside the Organization of the Petroleum Exporting Countries, (the cartel that controls a third of the world’s crude production).
- The signing of the Iran nuclear agreement allows Iran to contribute to oil production, initially 700k-BBL/Day eventually 1.5-MM/BBL/Day. Iran is currently not in support of caps/cuts on oil production.
- 2015/2016 winter has been one of the warmest in nearly 60-yrs, expected consumption has fell short, adding to stockpile inventory.
- Soft demand and less than optimistic economic performance from China has levied additional concerns.
- The overall decline in global oil prices has added an element of conservatism in virtually all oil and gas related equipment valuations.
Where are equipment values likely to go in the future? Given the uncertainty with the world markets today including the economies of many nations, political uncertainty, terrorism and the continuing turmoil in the middle east, that is tough question to answer with any degree of certainty. However, there are a number of factors today that suggest that the market and conversely equipment values will continue to be relatively soft for some time to come.
- Consumption is less than anticipated, production capability and the finical need for countries to produce has never been greater, oil production and demand needs to be balanced.
- Oil producing primaries are finally accepting the notion that balance is needed to move forward in a sustainable way, expressed in their recent dialogue, mentioned above.
- It is most likely that we experience sluggish commodity performance throughout the first three quarters of 2016, with paralleled equipment utilization and remarketing potential.
- If current trends uphold it is likely that incremental recovery should gain traction by the fourth quarter of 2016.
The global situation has an obvious effect on current utilization and remarketed equipment values, the global situation will change. For the first time in over 20 months, there appears to be desire to change, hopefully this is the beginning of the end of this market share war.