The global energy industry is in the midst of writing a new chapter in its long-storied history as oil producing companies and countries reset their strategies and policies to meet the challenges of a technology-driven, lower oil price era. Industry expectations that prices would steadily strengthen by the end of 2017, as oil inventories contracted and production cuts took place with reduced capital investment curtailing supply, gave way to a soberer mindset. The prevailing industry narrative now sees $50-60/bbl as the new normal through the end of the decade, and possibly longer.
Spearheaded by high-level diplomatic initiatives from Saudi Arabia and Russia, the OPEC and non-OPEC production cuts implemented on January 1 aimed at hastening a drawdown in high global stock levels initially triggered a sharp rise in oil prices on expectations of tighter markets. However, the unexpected, robust resurgence in U.S. shale (or tight oil) production has partially undermined OPEC’s strategy and led to a much slower than expected decline in inventories. The rapid rebound in shale took the group by surprise, prompting the producer alliance to undertake a review of its options to support stronger markets.
Pressured by prices trading some 50-60 percent below peak levels posted three years ago, producers of relatively higher cost U.S. tight oil exceeded industry expectations yet again by developing even more innovative applications of technology to improve operational and cost efficiencies, increasing production to levels unimaginable just a year ago. The imperative to improve cost economics across the industry has also led international companies to re-engineer their operations by implementing more advanced technologies to develop new best business practices. Once again, the arsenal of more innovative and advanced technologies unleashed by the shale revolution continues to transform the global oil industry.
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