The challenges of the oil price

The challenges of the oil price

Christian Borrmann - 26 February 2015

The strong fluctuation of the oil prize in the past months is a very challenging situation for the oil and gas industry

About the author

Mr Christian Borrmann
Christian Borrmann is the Editor-in-Chief of Valve World magazine and is the coordinator for the Valve World Conference in Europe.
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Since the last months of 2014, the oil price has dropped by almost fifty percent compared to the spring/summer prices last year and the last time that the oil was so cheap was in May 2009.

Reasons for this development are manifold: the weak Euro, which at the same time empowers the Dollar, and the economic situations in various markets in Asia and Europe are still not stable enough compared to what they used to be. All these things have led to the situation that the demand for oil is not very high right now.

The thing is, however, that the oil producing countries keep on producing oil at a record level or at least to the same extent as they did in the 1980s. One reason for this is the development of new technology over the past 25 years. Areas which were not of interest before because they were too expensive to work on are now becoming attractive and possible to reach (such as the deep sea, the Russian Tundra, the arctic sea, etc.). This continuing production leads to a situation where there is actually too much oil on the market which in turn causes a low oil price since the demand is not there to meet the supply.

Will there be an immediate end to this? I don’t think so. When you look at the global situation, then the oil producing countries are not showing any sign of stopping production. This could be due to their position in the market. Countries such as Saudi Arabia have gained good positions in the global markets and of course they don’t want to give this spot up just like that. However, they keep on producing oil even though they should be slowing down (not stopping!) for the time being. Further, the US has now also decided to export oil into the global market, which will not really help to increase the prices again. So no, an immediate end is not in sight, indeed it might be that the price will even drop a bit more in the coming months - although, you can never be sure about this development as also not many people predicted this drop in price.

What does this mean for the valve industry? Well, since production is currently continuing this means that there is still a demand for valves, actuators, and other valve parts for maintenance and replacements. Regarding new projects, there are plenty of projects in various areas still under development or under construction already – so that side is also covered for the time being.
All in all, the current situation is not too bad; however companies that are investing in the production of oil will be more cautious with their projects. Challenging and interesting times again...


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