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Oil Industry Headed for Record Third Straight Year of Cutbacks

By on 25 May 2016 in news, notable posts

(Bloomberg) Global crude supplies will start to dwindle in as little as two years, boosting prices, as the industry cuts investment to weather the worst market collapse in a generation, according to Statoil ASA.

Oil companies reduced capital expenditure last year and are likely to cut it further this year and next, Statoil’s Chief Financial Officer Hans Jakob Hegge said in an interview in London. Lower spending means there could be a “significant effect” on crude supply after 2020, he said.

“For the first time in history, we’ve seen cutting of capex two years in a row and potentially we risk a third year as well for 2017,” Hegge said. “It might be that we see quite a dramatic reduction in replacing the capacity and of course that will have an impact, eventually, on price.”

Despite signs the supply glut is easing, companies are preparing for a prolonged downturn. The industry reduced capital spending by 24 percent last year and is expected to cut it by another 17 percent to about $330 billion this year, the International Energy Agency said in February. Oil fields require constant investment to maintain production, and in 2016, for the first time in years, drillers will add less oil from new fields than they lose through natural decline in old ones, according to Oslo-based Rystad Energy AS. Producers have seen their earnings plunge and debt pile up as Brent crude, the international benchmark, trades at half the level it was at two years ago. Even though prices have recovered more than 80 percent since January, the industry is cutting deeper.

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