THE DECISIONS recently made by many oil majors to slash spending on new projects could be good for the oil price, according to analysts.
According to research from Rystad Energy, there has been a $100bn (£65bn) drop in oil and gas capital expenditure since the oil price began to fall from around $115 a barrel last June. The benchmark Brent crude oil price fell to below $50 in January, but has since rallied.
Malcolm Graham-Wood at Hydrocarbon Capital said: “They are all cheering down in Riyadh.”
With capex coming down, it follows that production will come down and, according to Graham-Wood, this will likely leave the members of the Organisation of Petroleum Exporting Countries (Opec) feeling vindicated in their policy of keeping production high.
“The majors are cutting their noses off to spite their faces,” he added. “When Opec sees their production coming down, it will cut production too and whack up the price.”
And FirstEnergy’s Stephane Foucaud told City A.M. that such cuts could lead to other issues for the oil market.
Abandoning projects and reducing jobs now will deter people from entering the industry, he said: “And then, three or four years down the line, when prices are high again and projects are back, companies will be scrambling around for skilled workers.”