Good luck oil and gas!

E&P firms in the country have been fidgety when it comes to earnings after the oil price crash. The E&P firms across the globe have felt the pinch as 2016 remained under the siege of multi-year low crude oil prices. And now with almost three months of 2017 over, it seems that oil price dynamics will continue to remain uncertain and volatile in the ongoing year.

2016 was a year where factors like oversupply, strengthening of US dollar, increase in US crude stock, and delayed production decision of the OPEC dragged the prices. But what’s the outlook for 2017 by the global investment banks?

“If 2016 was the year of tough decisions, 2017 could be viewed as the slow road back’’, says a Deloitte insight.  Upstream investors should be somewhat comfortable as the outlook is relatively positive for the oil prices, and hence the oil and gas E&P sector. World Bank, indicate that oil price is on recovery path predicting oil price to hover around $55 per barrel; while EIA forecasts Brent crude oil prices to average $52 per barrel in 2017 compared to $43 per barrel in 2016. Of these forecasts, Goldman Sachs and Bank of America Merrill Lynch are more sanguine (between 56 and $60 a barrel).

While there are positive vibes for the crude oil prices in 2017, it should not be mistaken with any sort of a full throttle recovery. The impact of the extended oil price downturn is likely to have long-term effects on the industry’s capital allocation strategy. Rather than betting on long term complex capital projects, the oil and gas companies are digging into projects with shorter lead times and shorter cycles.

2016 was marked by an historic event where OPEC finally gave in for a production cut after 15 years amid supply glut; which shows how fragile the industry had become post the oil price crash. While a lot depends on OPEC keeping its flows in check, the situation has great chances of being affected by the speedy production form US Shale. in that case, price increase will be restricted.

In summary, global oil and gas sector is finally set on the path of recovery, albeit slow. From the optimistic outlooks, oil prices are expected to hover at $55-60 per barrel, which will be a breath of fresh air for the E&P sector. While oil producing nations have had a hard time, the slump in oil price has rather been beneficial for Pakistan’s economy in shape of reduced petroleum import bill; it has also helped the downstream companies like oil marketing firms in strengthening their financial position that has been squeezed due to rising receivables by the firms.