• On Feb 16th, 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 didn’t 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 in March.
  • 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.
  • March 15th, Qatar announced that it would host a meeting on April 17 in Doha for oil producers both inside and outside the OPEC, (OPEC controls a third of the world’s crude production). April 17th, meeting was held, yielding stagnation and disappointment; no agreement, Saudi insisted all parties to cap at present levels, Iran refuses to sign until it reaches its pre-sanction level of approximately 4-MM-BBl/day.
  • Approximately 70% of global oil production is consumed as transportation fuel, the onset of the 2016 driving season in the northern hemisphere is anticipated to draw down bloated inventories.
  • US sales of SUV class vehicles have been steadily increasing, however there has been little noted effect in gasoline consumption, likely to increases in vehicle fuel efficiencies.
  • Oil has been steadily climbing in May, as outages in Nigeria, Venezuela and elsewhere have coupled with declining U.S. production, and Canadian oil sands output cut in half by wildfires in northeastern Alberta.
  • Although WTI has been flirting with $50/BBL, it will likely fluctuate between 45-55 for the balance of 2016. If current trends continue, by the fourth quarter 2016 and into 2017 we are likely to realize a sluggish and incremental increase in oil into the high 50s to low 60s, making the US oil production market stable and Canadian marginal.
  • 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 financial need for countries to produce has never been greater, oil production and demand needs to be balanced, (analysts suggest an averaged sustainable price of $65/BBl is necessary to maintain market equilibrium).
  • 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 oil prices 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 forth quarter of 2016, with oil forecasted at low fifties by end of Q4 2016 and ultimately into the mid sixties by the end of 2017 or early 2018.

Aestimo May 2016 World Oil Supply and Demand

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.

Aestimo May 2016 CAODC Utilization