Are we in an oil bust worse than the famous crash of 1986? The investment bank Morgan Stanley thinks so.
Oil companies have scrambled to cut costs and shore up their financial positions, and the industry has adopted the mantra that prices will be “lower for longer”. But with no consensus about how much lower for how much longer, executives have to steer a difficult course between riding out the storm in the hope of an upturn, and panicked overreaction.
Analysts polled by Reuters suggested Brent crude, now below $50 per barrel, would average $60.60 per barrel this year and $69 next, while the International Energy Agency foresees a recovery to $73 by 2020. But after oil prices had modestly recovered from January’s lows, the renewed plunge last month burnt several hedge funds.
Bearish factors abound. The continuing growth in Iraqi production, historically high Opec output led by the Saudis, the prospect of a return of Iranian crude, and future growth in Mexico as its industry opens up, collide with a tepid Chinese economy and a weak outlook for most commodities.
But Morgan Stanley's comparison with 1986, although technically accurate, seems misleading. Back then, prices had already been dropping for five straight years before they plummeted. Opec spare capacity was 13 million barrels per day – 15 per cent of global demand – which took a generation to work off. Surging non-Opec output from the North Sea, Mexico and Alaska met consumption in steep decline owing to the increased use of other fuels.
Compare the current situation, when Opec spare capacity is only 2 million bpd or so, virtually all in Saudi Arabia, global demand is anaemic but growing, and non-Opec growth has been led entirely by North American shale projects, now beginning to show the effect of a year of declines in drilling. The fall in oil prices has been sharper than 1986 but was not preceded by a steady decline from a peak. And even at $50 per barrel, oil still seems valuable compared to 1998 when, adjusted for inflation, it was below $19 per barrel.
Oil companies have already cancelled $180 billion of spending on 46 planned megaprojects, particularly in high-cost areas in deep water and Canada’s oil sands. The abandonment of ageing North Sea fields, and the deferral of exploration in new areas will weigh on future production.
New debt and equity financing for US shale companies, abundant earlier this year, now seems to be drying up. They are considering asset sales, as are some of the super majors, including BP and Shell. But if everyone is a seller, who will be a buyer?
Even at $50 per barrel, prices are perfectly adequate for many projects to go ahead, if the industry can get some control over its costs. It has so far been more sensible than in previous busts, managing to retain skilled technical staff despite layoffs, reducing supply chain expenditure, improving technology, particularly in shale drilling, and beginning to reshuffle portfolios towards lower-cost fields, as with Shell’s purchase of BG, and wider industry excitement about Iran.
Governments and labour unions have to play their part. In countries from Canada to Norway to Australia, taxes, regulations, environmentalist obstructions and pay rates have swollen to absurd levels. One oil executive quoted by Reuters reportedly maintained his company would never build anything in Australia again unless labour laws were reformed.
Although prices should increase somewhat from today’s levels, no one – rightly – is betting on a return to $100 per barrel oil. Severe though this slump is, well-run companies should come through it stronger. But for the sake of future demand, the industry needs to start thinking how to resurrect, and finance, some of its $180bn of lost projects.
Robin Mills is the head of consulting at Manaar Energy and the author of The Myth of the Oil Crisis.
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Other workplace saving schemes
- The UAE government announced a retirement savings plan for private and free zone sector employees in 2023.
- Dubai’s savings retirement scheme for foreign employees working in the emirate’s government and public sector came into effect in 2022.
- National Bonds unveiled a Golden Pension Scheme in 2022 to help private-sector foreign employees with their financial planning.
- In April 2021, Hayah Insurance unveiled a workplace savings plan to help UAE employees save for their retirement.
- Lunate, an Abu Dhabi-based investment manager, has launched a fund that will allow UAE private companies to offer employees investment returns on end-of-service benefits.
THE BIO
Born: Mukalla, Yemen, 1979
Education: UAE University, Al Ain
Family: Married with two daughters: Asayel, 7, and Sara, 6
Favourite piece of music: Horse Dance by Naseer Shamma
Favourite book: Science and geology
Favourite place to travel to: Washington DC
Best advice you’ve ever been given: If you have a dream, you have to believe it, then you will see it.
UAE currency: the story behind the money in your pockets
Formula Middle East Calendar (Formula Regional and Formula 4)
Round 1: January 17-19, Yas Marina Circuit – Abu Dhabi
Round 2: January 22-23, Yas Marina Circuit – Abu Dhabi
Round 3: February 7-9, Dubai Autodrome – Dubai
Round 4: February 14-16, Yas Marina Circuit – Abu Dhabi
Round 5: February 25-27, Jeddah Corniche Circuit – Saudi Arabia
Gully Boy
Director: Zoya Akhtar
Producer: Excel Entertainment & Tiger Baby
Cast: Ranveer Singh, Alia Bhatt, Kalki Koechlin, Siddhant Chaturvedi
Rating: 4/5 stars
If you go
Where to stay: Courtyard by Marriott Titusville Kennedy Space Centre has unparalleled views of the Indian River. Alligators can be spotted from hotel room balconies, as can several rocket launch sites. The hotel also boasts cool space-themed decor.
When to go: Florida is best experienced during the winter months, from November to May, before the humidity kicks in.
How to get there: Emirates currently flies from Dubai to Orlando five times a week.
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UAE currency: the story behind the money in your pockets
UAE currency: the story behind the money in your pockets
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Company%20profile
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Our legal consultants
Name: Hassan Mohsen Elhais
Position: legal consultant with Al Rowaad Advocates and Legal Consultants.
Take Me Apart
Kelela
(Warp)
Living in...
This article is part of a guide on where to live in the UAE. Our reporters will profile some of the country’s most desirable districts, provide an estimate of rental prices and introduce you to some of the residents who call each area home.
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Our legal consultant
Name: Dr Hassan Mohsen Elhais
Position: legal consultant with Al Rowaad Advocates and Legal Consultants.
The specs
Engine: 1.5-litre, 4-cylinder turbo
Transmission: CVT
Power: 170bhp
Torque: 220Nm
Price: Dh98,900
About Housecall
Date started: July 2020
Founders: Omar and Humaid Alzaabi
Based: Abu Dhabi
Sector: HealthTech
# of staff: 10
Funding to date: Self-funded
Shubh Mangal Saavdhan
Directed by: RS Prasanna
Starring: Ayushmann Khurrana, Bhumi Pednekar
German intelligence warnings
- 2002: "Hezbollah supporters feared becoming a target of security services because of the effects of [9/11] ... discussions on Hezbollah policy moved from mosques into smaller circles in private homes." Supporters in Germany: 800
- 2013: "Financial and logistical support from Germany for Hezbollah in Lebanon supports the armed struggle against Israel ... Hezbollah supporters in Germany hold back from actions that would gain publicity." Supporters in Germany: 950
- 2023: "It must be reckoned with that Hezbollah will continue to plan terrorist actions outside the Middle East against Israel or Israeli interests." Supporters in Germany: 1,250
Source: Federal Office for the Protection of the Constitution
How to avoid crypto fraud
- Use unique usernames and passwords while enabling multi-factor authentication.
- Use an offline private key, a physical device that requires manual activation, whenever you access your wallet.
- Avoid suspicious social media ads promoting fraudulent schemes.
- Only invest in crypto projects that you fully understand.
- Critically assess whether a project’s promises or returns seem too good to be true.
- Only use reputable platforms that have a track record of strong regulatory compliance.
- Store funds in hardware wallets as opposed to online exchanges.
U19 World Cup in South Africa
Group A: India, Japan, New Zealand, Sri Lanka
Group B: Australia, England, Nigeria, West Indies
Group C: Bangladesh, Pakistan, Scotland, Zimbabwe
Group D: Afghanistan, Canada, South Africa, UAE
UAE fixtures
Saturday, January 18, v Canada
Wednesday, January 22, v Afghanistan
Saturday, January 25, v South Africa
UAE squad
Aryan Lakra (captain), Vriitya Aravind, Deshan Chethyia, Mohammed Farazuddin, Jonathan Figy, Osama Hassan, Karthik Meiyappan, Rishabh Mukherjee, Ali Naseer, Wasi Shah, Alishan Sharafu, Sanchit Sharma, Kai Smith, Akasha Tahir, Ansh Tandon
COMPANY%20PROFILE
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ACL Elite (West) - fixtures
Monday, Sept 30
Al Sadd v Esteghlal (8pm)
Persepolis v Pakhtakor (8pm)
Al Wasl v Al Ahli (8pm)
Al Nassr v Al Rayyan (10pm)
Tuesday, Oct 1
Al Hilal v Al Shorta (10pm)
Al Gharafa v Al Ain (10pm)