RIYADH: Outlook is getting bleaker.

With oil prices losing more than half their value over the past year, shedding more than $10 a barrel during the last month only, industry is beginning to react.

Markets responded negatively to the statement in Moscow last week by Opec Secretary General Abdullah al-Badri, after meeting the Russian Energy Minister Aleksandr Novak, indicating that no (Opec) output cut was in offing.

Analysts are taking cue. ABN AMRO last week lowered it price forecast for Brent to average $65 in 2016 from its previous forecast of $75.

Jeff Currie of Goldman Sachs is now setting a $45 a barrel target for WTI. “I think the downside risks are substantial,” Currie told CNBC last week.

The prospect of oil prices falling below $40 receded earlier this year amid a crude rally, but with futures sliding again, investors shouldn’t rule out a three-handle, John Kilduff of Again Capital said.

“Christmas time we’ll probably be rebounding off new lows off of the mid to low 30s,” he told CNBC’s “Squawk Box.”

A growing global glut of diesel fuel could be the next catalyst, he said, noting that Saudi Arabia and China have ramped up their refining capacity and are now flooding the Asian market with diesel.

Oil majors are getting itchy. Some $200 billion projects have been shelved, in recent months. The plunge in crude prices has resulted in the deferral of 46 big oil and gas projects with 20bn barrels of oil equivalent in reserves, Financial Times (FT) said quoting a report from the consultancy Wood Mackenzie.

Among companies postponing major investment plans are BP, Shell, Chevron, Statoil, and Australia’s Woodside Petroleum. Earlier in May, Rystad Energy, a Norwegian consultancy, reported $118bn of projects being put on hold. However, the toll is now much greater, FT underlined.

More than half the reserves put on hold lie thousands of feet under the sea, including in the Gulf of Mexico and off west Africa, where the technical demands of extracting crude and earlier inflation have pushed up the cost of projects.

Major North American sand oil producer, Canada appears to be a big casualty. Development of some 5.6bn barrels of reserves, almost all oil sands, having been deferred, the study reported.

“The upstream industry is winding back its investment in big pre-final investment decision as fast as it can,” Wood Mackenzie said in the report.

The report underlined the number of major upstream projects, expected to be fully approved during 2015, could probably be counted “on one hand”.

Royal Dutch Shell and British Gas-owner Centrica are also cutting, between them, 12,500 oil exploration and production jobs as the downturn could last “for several years”.

With Shell insisting the price may remain low “for several years,” it announced cutting 6,500 jobs, with investment spending to fall by around $7bn this year. As for Centrica, a BBC report said it is set to axe 6,000 jobs as its profits fell 3 per cent to £1bn.

News of the latest cutbacks follows similar announcements by BP and Norwegian Statoil. Last week BP announced a second-quarter replacement cost loss of $6.3bn, warning the low oil prices were here to stay.

The “external environment remains challenging,” Bob Dudley, BP chief executive said in a statement, emphasising, “in the past few weeks oil prices have fallen back in response to continued oversupply and market weakness and the recent agreements regarding Iran.”

With crisis in Libya continuing, oil majors also had to write off major investments in the post Qaddafi, war torn country. BP has just announced taking an impairment of almost $600 million in the second quarter, suspending its oil exploration campaign. Total also announced writing off $755 million from onshore assets in Libya, some three months back.

The mid- to long-term scenario is getting murkier. Investments are a big casualty. What if the global demand continues to rise — as per some projections? With global energy horizon influx, that remains a big if — with very few, if any — in position to handle the query. This is scary.

Published in Dawn, August 2nd, 2015

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