publish time

09/01/2017

author name Arab Times

publish time

09/01/2017

NEW YORK, Jan 8, (AFP): The US oil industry is feeling guarded optimism going into 2017 as it pivots from a brutal two-year slump prompted by crashing crude prices.As the new year kicks off, industry insiders describe a tentative recovery, with some low-cost drilling basins starting to pick up even while others remain depressed.The downturn, among the worst since the 1973 Arab oil embargo, led to bankruptcies, layoffs of hundreds of thousands of workers and a significant pause on the American shale boom.Energy producers have been cheered by the election of Republican Donald Trump, whose cabinet picks include oil industry allies like climate-change skeptic Scott Pruitt to head the Environmental Protection Agency and ExxonMobil chief executive Rex Tillerson as secretary of state.“Operators are still being guarded with their money,” said Jason McFarland, president of the International Association of Drilling Contractors in Houston.“But certainly we’re seeing a loosening of the grip on investments as the price of oil rises.”Even more important, sentiment got a boost from the November 30 agreement by the Organization of the Petroleum Exporting Countries to cut production to address a supply glut that had threatened to push oil prices back to multi-year lows.After the OPEC deal, “it is meaningfully different in sentiment,” said David Pursell, a managing director at the Houston energy investment bank Tudor, Pickering, Holt & Co.“Before November 30, this was like the Bataan Death March,” he said, referring to the grim outlook in the industry.Now, “People are cautiously optimistic, which is light years from where we were eight weeks ago.”US oil prices, which tumbled to close to $25 a barrel a year ago, closed at $53.99 a barrel on Friday.Part of the industry’s hesitancy is due to skepticism about whether OPEC members and countries outside the cartel, such as Russia, will actually comply with the agreed production cuts.And if the cuts are implemented, there remains the question of what will happen if the agreement is not renewed after its six-month duration.OPEC appears to be signaling that “high-cost producers should not take for granted that they will receive a free ride to higher production,” the International Energy Agency said in a report last month.“These high-cost producers, who assume that the cuts at the very least guarantee a floor under prices, might think twice before taking the risk of sanctioning new investments.”Other unknowns that will affect the market include the path of US consumption in the expected fast-growth Trump era; whether Indian demand will stay high; and how the ever-evolving Chinese economy will affect its thirst for petroleum.Shale is another question mark. The US is expected to see capital investment recover more quickly than other countries that have long-term oil investment cycles.The rise of American shale production, made possible by technological leaps in drilling and resource recovery, lifted US production to multi-decade highs in 2015 of about 9.6 million barrels per day (bpd), a remarkable 80 percent higher than in 2010.But that momentum came to a screeching halt amid the industry downturn, and US production fell back to 8.6 million bpd in September 2016.Recent higher prices have seen that figure creep back up to 8.8 million bpd, according to data from the US Energy Information Administration.How fast the industry can recover is uncertain.“We don’t have much experience in terms of looking at projects like this in terms of their rapid recovery because we have never really been there before,” said Neil Atkinson, head of the oil market division at the IEA.“The question is how quickly can it respond if people believe higher prices are here to stay,” he said about the prospects for increased production. “We don’t yet know.”Early indications show a big jump in the rig count in the Permian Basin in West Texas compared with a year ago: the count currently stands at 267 rigs, up from 209 a year ago, according to figures from Baker Hughes.Each new rig directly employs about 20 people and supports dozens of other workers in related services, IADC’s McFarland said.But activity remains well below year-ago levels in the Eagle Ford Shale region, which crosses much of Texas, and in North Dakota, home to the Bakken Shale. Both were hot growth areas prior to the downturn.The Permian is appealing because it is low-cost and close to pipelines and other key infrastructure, said Jesse Thompson, a business economist with the Federal Reserve Bank of Dallas based in Houston.“You’re hearing about some hiring,” Thompson said. “We know the trend of the employment in the industry is turning, there are still some people getting laid off. There are still companies in financial distress.“This is a transition period.”