2018 Oil and Gas Industry Outlook: Rebound or the New Normal?
- Supply reductions by OPEC, Russia, and other non-OPEC producers improved equilibrium with global demand.
- U.S. oil and gas production and exports soared, led by unconventional shale producers.
- Key indicators such as North American rig counts were up 40% in 2017 from 2016.
- Digital became pervasive, particularly analytics and artificial intelligence in the oilfield through field data capture, remote monitoring, and surveillance, and improved productivity.
- Sluggish global demand kept prices marginally depressed relative to supply.
- U.S. natural gas prices remained low with significant untapped reserves.
- Reduced shareholder returns, including dividend cuts, as firms focused on improving their balance sheets.
Heading into 2018, key indicators such as the decision to extend production cuts by OPEC, Russia, and other non-OPEC producers, global demand improvements, and geopolitical tensions will become important to evaluate 2018’s recovery and momentum potential.
What to Watch
- Production volumes from the U.S., Saudi Arabia, and Russia, and if OPEC and other non-OPEC producers continue to curtail production through 2018.
- The U.S. economy’s continued growth and its impact on developing nations that will likely need more energy as they improve their infrastructure and modernize their economies.
- While geopolitical tensions in the Middle East region are generally low, further escalation with North Korea and uprisings in Iran could create volatility.
- Notwithstanding compliance changes from OPEC, Russia, and non-OPEC producers, oil prices will continue their stable upward trajectory, with West Texas Intermediate (WTI) in the $55-65 per barrel range.
- U.S. unconventional producers will continue production increases due to improved market fundamentals and supporting midstream and services companies will benefit.
- U.S. offshore exploration and development starts to make a comeback due to favorable coastal drilling policies from the current administration and improved production technology and efficiencies.
- Rig counts will continue to increase but will likely stall in the second half of the year.
- Digital investments and data pervasiveness will create data-driven operating model opportunities not just in the oilfield but also in the supply chain and back office.
2018 is set up to be a year of renewed optimism for the oil and gas industry. While many will approach the first half of the year cautiously, winners will take calculated risks and employ new capital on improved market fundamentals and diligently evaluate OPEC compliance and other external factors that will influence the second half of the year. Hiring will show signs of improvement, particularly in West Texas, but will likely be throttled by continued digital investment and automation.
In summary, the question remains—will 2018 be a rebound year or is this the “new normal”? The answer, from my perspective, lies somewhere in the middle. 2018 will be the next iteration of what the “new normal” means—the U.S. rivaling Russia and Saudi Arabia as the leading global energy producer, favorable policies and regulations will continue under the current U.S. administration, market fundamentals will continue to improve, and innovation and digital transformation will further separate winners and losers.