As 2015 winds down, the hope for a recovery in domestic crude oil has all but diminished. But the U.S. energy industry is nothing if not resilient. Many companies--from large E&Ps to mid-sized producers caught up in the optimism of the shale boom--have opted for stark survival tactics in the face of a market that, as one Goldman Sachs report put it, threatens to stay lower for longer.
In this environment, wellhead equipment and service providers must follow the right metrics for measuring a market that is often a press release away from careening out of control. Below are some of the market's most recent measurements and predictions that service providers and end users alike need to know if they want their business to survive an uncertain 2016.
The amount that U.S. crude and natural gas production must fall, in barrels per day, during 2016 to end the global oversupply by next year's end. According to a Sept. 11 report from Goldman Sachs, U.S. shale is both the easiest and most risky path forward for rebalancing the oil supply. While the rigs themselves can respond quickly to idling, the industry is less homogenous than its major international competitor, the Organization for Petroleum Exporting Countries (OPEC). These two economic models going head to head--a competitive industry of several producers versus a government-led cartel--increases the likelihood that U.S. producers will be responsible for venting the oversupply. Whether or not producers reach the number Goldman Sachs predicts is still up for debate.
The doomsday price for Brent oil prices per barrel if the oil production slowdown takes place too slowly in 2016. According to the same Goldman Sachs report, the production cuts are important both in the amount of barrels per day and how quickly they leave the supply chain. If the reduction occurs too gradually, the market risks a major correction--especially as the strain on storage capabilities becomes more pronounced.
The spread between Western Texas Intermediate (WTI) and Brent oil prices per barrel as of market close Sept. 14. In recent weeks, the margin between the two benchmarks has shrunk considerably even as the U.S. House of Representatives is pushing forward a bill to lift crude oil export restrictions on the books since the 1970s. Producers and politicos both want these restrictions out of the way so crude oil can make a grab at international market share. However, as Brent closes in on historically low WTI, selling oil abroad at benchmark Brent prices loses some appeal and promises fewer returns.
The domestic oil rig count of as Baker Hughes Sept. 11 release. It is the second week of sharp declines for the rig count after a steady, uncanny buildup over the summer. Meanwhile, gas rigs fell below the 200 mark to 196, the lowest number recorded so far by the company.
The current interest rate policy in force by the Federal Reserve, also referred to as the zero interest rate policy (ZIRP). This policy, designed to buoy the national economy after the 2008 recession, has been an underappreciated contributor to the U.S. shale boom, apart from recent technological advances. Crude oil producers have been able to leverage cheap debt for years as well output surged. However, analysts predict that the Fed will revise this policy and lift its interest rate before the year's end--possibly during its next meeting Sept. 16-17. This means that capital will become more expensive for crude oil players at a time when the value of their assets is plummeting.