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Main points before invest in Oil and Gas industry

Since January 2007, the global bulk commodity pricesat the lowest level. The Scotia bank commodity price index plunged again in January of this year, fell below the low point in April 2009 in the "Great Recession" period, which led by oil and gas index. Oil & Gas Index in January were decreased 21.5%, down 52.4%. More investment in the oil and gas investors need to understand the intricacies factors when invest in the oil and gasmarket.


Crude oilmarket is facing negative factors:

1. Despite the global economic situation is better than in 2009, but the global economic growth since 2012 continued in the little more than 3% level, the growth rate is low.

2. The oil and gas industry over the past few years was significant expansion, triggering fierce competition, most recently in the oil and gas market is being staged fierce battle for market share, is not conducive to oil prices.

3. Over the past period of time the US dollar against most currencies, making dollar-denominated oil prices.


Crude oil market is facing bullish factors:

1. Since 2015, approximately 20 countries including China implement the rate cut and easing policy, which could boost the economy and increase demand. February 5 China's central bank cut commercial bank deposit reserve ratio by 0.5%, while for some city commercial banks, rural commercial banks to reduce extra RMB deposit reserve ratio by 0.5 percentage points. Market hopes that after the Chinese New Year (February 19 to 23), corporate finance and market conditions improve cost reduction will increase in manufacturing activity. This will make China's oil demand increases.

2. Saudistate-owned oil company CEO recently said, oil price is lower than the average global cost of oil, it will not long remain about $ 50. Scotia Bank analysts believe that in 2015 the average WTI price is 55-60 US dollars, in 2016 is up to 65-70 US dollars.

3. The globaloil supply has substantial adjustment and prices upgrade. Scotia Bank expected the global oil demand is to remain moderate in 2015, increased by only 1 percent, or 90 million barrels / day, however, the oil and gas industry in the exploration and development capital spending will slow significantly reduce the growth rate of global crude oil production, will make the second half of the year production growth and demand growth consistent. 2015 global oil and gas exploration and production spending is expected to be reduced by 30%. This will make the oil and gas market return to equilibrium in the second half of this year. In addition, the political turmoil of mainly crude oil producing countries, Libya, Iraq and Nigeria will generate support for the oil price.


The followingthree showed crude oil supplies are going through adjustments:

1) US oil and gas industry drilling activity substantial cooling. As of February 20, the United States the number of rigs in operation dropped to 1019 units, than the 2014 annual average reduction of 33.2%. Scotiabank analysts expect that if this trend continues, it will be enough to completely contain the increase in US shale resource production.

2) large oil and gas producers to cut capital spending. 2015 Total exploration spending will be reduced by 30%. BP cut capital spending this year will be 20%. As expected, Chevron will cut exploration spending. Meanwhile, the top five companies in the oil and gas proved reserves of crude oil three companies declined. Between 2009-2013, only Exxon Mobil Corp. and Total SA's crude oil reserves increased, Royal Dutch Shell, BP and Chevron last year's crude oil reserves are declining.

3) reduction of the global oil market investment. Russia is the 2014 world's second largest producer of liquid energy. Due to the downturn in oil prices and sanctions Western countries, the country's energy production is suppressed. Russian oil and gas producers can not get deepwater, arctic technology and equipment needed to develop the oil and gas and shale resources from Western countries. Total and Exxon Mobil has delayed the establishment of a joint venture with Russia's progress. In addition, the Russian oil and gas companies can not obtain financing from Western countries. 2015 and 2016 annual crude oil production in Russia could be reduced by 15 million barrels / day. Norway and Colombia crude oil production has also been pressure from low oil prices. Although crude oil development in Iraq continues, however, the delay time of the country's crude oil project may be longer than expected.


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