29 January 2018
CM Industrial By CM Industrial

4 Reasons Why 2018 Is Finally The Year of Oil.

When I was having conversations with senior members of staff across the oil and gas space 15 months ago, there was a lot of optimism in the air. The consensus was, “we’ve made it through 2016, 2017 is going to be our year!” Hindsight shows us that those expectations and hopeful predictions weren’t quite right, but it wasn’t all bad.

We saw the price of Brent crude increase by around 20%, while redundancies and company closures decreased with a general stabilisation of the industry. So, while it didn’t quite happen last year, could 2018 be the year that we really see oil have a resurgence?

In January we’ve already seen Brent hit the $70 mark for the first time since 2015, which is a great start. But here are four more reasons that we should get excited for a great 2018:

1.      The Graphs Look Good

The crash in 2014 was the worst we’ve seen in a generation. The value of Brent dropped more than 60% almost overnight, and at the time there were some dark predictions for the future of the entire industry.

Luckily, we’re still at a point where oil is a commodity and a necessity for thousands of businesses – so the doomsayers were a little premature.

Since hitting $34 in 2016, the graph has steadily been on the up and it looks as though we’re now comfortably past the worst of the crisis.

2.      The Market is Stirring

A market with nothing going on is a market in trouble. For the last couple of years, that’s been the case with Oil and Gas. But this is starting to change.

2017 saw more M&A than 2016, with companies capitalising on the vulnerability of smaller players battered by the crash. Major moves like GE’s $7.4bn acquisition of Baker Hughes and Nabors Drilling $215m acquisition of Tesco show that companies are keen to diversify their offering and strengthen their position in the market, suggesting that there’s faith in a market resurgence.

Another good sign has been the emergence of new companies. When there’s little sign of a resurgence you tend to see less PE and venture capitalist company investment, with fewer risks taken. However, 2017 has seen a number of newcomers enter the market, with Borr Drilling a standout performer.

The emergence of new companies and M&A activity can all be tracked back to one key change in activity: the operators giving the green light to more projects. We’ve stopped seeing projects cancelled or put on hold, and the discussions I’ve been having indicate that an increase in bid and tender activity is likely, with projects starting to move again. This might not have immediate financial benefits, but it inspires optimism in the market, essential for a continued upward trend.

3.      Political Sway

Throughout the downturn, it was all eyes on OPEC, with many blaming it all on an early refusal to cut production from the Saudis. We now know that this has changed and the final meeting of 2017 between OPEC & non- OPEC nations resulted in an agreement to prolong the existing cuts until at least the end of 2018.

If supply drops, demand grows and prices rise. So, more good news.

4.      Hiring is Happening

Perhaps the biggest luxury in the oil market is its well-paid people. Hiring and firing trends are one of the biggest indicators of the market’s success and, after a couple of years of battening down the hatches with headcounts dropping everywhere, it’s starting to change.

Throughout Q3 and Q4 of 2017, candidates who had previously been looking for work for a while post-redundancy were telling us that they were involved in multiple processes more regularly.

We also saw this backed up on the other side, with my team taking on a number of new assignments from companies finally feeling ready and prepared to capitalise on the surplus of exceptional talent that is currently available – probably one of the largest and most highly qualified groups of unemployed people in the world. 

So, I’m hopeful that 2018 is going to be a positive year, with the upturn continuing and positive news coming from, and for, our clients who provide products and services to the sector.

The hope is that lending houses will keep enabling sustainable start-ups and existing companies will bring exciting new technologies to the market. We should also hope that OPEC continue to have a cautious approach before completely throwing the shackles off production.

 
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