Just hours after Shell reported a Q1 profit thanks to increased oil prices, the price of both Brent Crude and West Texas plummeted by around 5% to end the day at a five-month low.
The reason for the fall was an announcement by OPEC that suggested that the agreement to tighten the supply by its members and independents may be extended at a meeting later this month but would not involve further cutbacks. Coupled with increased US output and rising storage figures that was sufficient to send prices falling after they had been reasonably steady in the $52-$55 range for most of the year.
Earlier in the week, analysts were talking of the possibility of a further drop in crude to the mid-$30s if OPEC does not keep a tight rein on its members’ outputs. Whether that happens remains to be seen but support for OPEC’s strategy has not been strong by some states since it was announced in January.
Along with the crude price fall, bunker prices also softened but by a lower percentage. Lower bunker costs are always welcomed by the shipping industry but the drop in crude prices will not help the offshore sector where vessels continue to idle. Presenting its Q1 results in Paris yesterday, Bourbon reported revenues down by 7.7% over the previous quarter and by 28.3% year on year. Bourbon offshore has idle a further 26 vessels as a result of the lower activity.
While it could not have known the full extent of the day’s fall in crude prices, Bourbon’s report was clearly focussed on the price remain static or going higher. “Despite oil prices remaining above $50 a barrel during the 1st quarter of 2017, activity is yet to recover in the Shallow water offshore and Deepwater offshore sectors. However, the upturn witnessed in late 2016 in specialised Subsea and personnel transport operations looks set to continue in 2017”, says Jacques de Chateauvieux, Chairman and Chief Executive Officer of BOURBON Corporation.
In the closing outlook from the report Bourbon said “Production reduction by OPEC members and non-members have not put to an end to uncertainty over oil prices evolution as inventories remain relatively high. However, if oil prices were to stabilise at between $50 and $60 a barrel, this could trigger renewed investment due to the strong drop in costs and the continued reduction in oil companies’ breakeven. The pace of the recovery will be partly influenced by the extent to which production recovers in the United States. If it materialises, this will result in delaying a significant price rise by several quarters.