Oil price ripples spread

Malcolm Latarche
Malcolm Latarche

13 May 2016


Like the ripples caused by a pebble tossed into a pond, the effects of the falling oil price continue to spread. This year the price of oil has risen slowly with regular drop backs as one expectation after another is dashed. A soft dollar has helped prices to remain above the depths to which they descended in early 2016 and occasional problems such as strikes by Kuwaiti oil workers, wildfires in Canada, talks of production freezes and the continuing cutback in US shale production have caused spikes in the price have helped push prices up at regular intervals. In spite of all this, the idea that oil may push back up to $60 or even $70 dollars has been more of a hope than an expectation even if some continue to try to talk up the price. The effect of the low price has hit hardest in offshore where hundreds of ships are laid up and thousands of workers laid off. This week there is talk of a further round of job cuts at DNV GL where 1,000 jobs related to oil and gas are supposedly at risk. As a centre of the offshore industry Norway is being affected more than many other nations but here at least there is a realisation that oil goose cannot continue laying golden eggs and the country is looking to other opportunities. Rumours of a merger among three of the offshore operators based in Fosnavaag have been rife and while Havila, Olympic and Rem have been traditional competitors they did at least come together to establish and invest in the Ocean Academy and simulator centre there. From the outset it was planned that the centre would be used by fishing companies as well as offshore and since many of the offshore companies including the three named have their roots in the fishing industry, that could be a second string to their bow as the government in Norway sees fishing and aquaculture as one of the replacement industries as oil and gas runs down. Away from the offshore sector, Saudi Arabian state oil company Aramco is being partially privatised with shares for 5% of the estimated $2Tn worth being scheduled for the IPO. Saudi officials describe the move as an attempt to diversify the country’s economy and reduce reliance on oil. Saudi’s reluctance to reduce output to shore up the oil price has been seen as a possible move to force US producers out of the picture but it is also very likely linked to the fact that the IEA and the UN have constantly argued that fossil fuels must remain in the ground to combat climate change. Saudi could be making hay while the sun shines and getting the most out of its assets while it can. Of course one thing that is seemingly being overlooked in all of this is that oil and gas is not just about energy. Along with coal, oil and gas provides the basis for the synthetic products that are part and parcel of the modern world. The world will continue to need energy from oil and gas for decades yet to come and the demand for synthetics will ensure a life for oil and gas long after nuclear or renewables displace fossil fuels.