Released May 03, 2023 | SUGAR LAND
en
Written by Daniel Graeber for Industrial Info Resources (Sugar Land, Texas)--Energy companies with a focus on upstream developments have been optimistic against lingering recessionary fears, though prices may be getting low enough to curtail some activity for all of the U.S. players involved.
Recessionary fears have not been supportive to crude oil prices, even amid tightening from OPEC+, the core members of the Organization of the Petroleum Exporting Countries and non-member state allies such as Russia. The group on May 1 started trimming 1.6 million barrels per day (BBL/d) worth of production, which a handful of analysts said should lead to triple-digit crude oil prices.
The price for Brent crude oil, the global benchmark for the price of oil, was trading near $76 per barrel on Tuesday, dropping further after a small retreat in the previous session. It traded as high as $87 per barrel as recently as April 12.
Louise Dickson, a senior analyst at consultant group Rystad Energy, said higher interest rates, along with higher lending rates, are increasing the likelihood of a recession, which could put a ceiling over the price of oil.
"The current pullback in oil prices -- below $80 per barrel of Brent, which has happened a handful of times since November 2022 -- is wrapped into recession fears as credit conditions in the U.S. and many other economies tighten, and uncertainty looms over the pace of Chinese demand recovery," she said.
Brent over the first three months of 2022 averaged $100 per barrel, about $20 higher than during the first quarter of 2023. That, however, has done little to bruise the pocketbooks of the energy majors.
Against the year-on-year slump in crude oil prices, Chevron Corporation (NYSE:CVX) (San Ramon, California), for example, posted total earnings of $6.5 billion, a 5% increase from year-ago levels. What's good for producers is clearly good for services companies, with Halliburton Company (NYSE:HAL) (Houston, Texas) reporting a 32% increase in total revenue from first quarter 2022.
More production is coming too. BP (NYSE:BP) (London, England), in reporting its second-largest quarterly profit since 2012, highlighted a slew of developments offshore. It started its first new project in the Gulf of Mexico during the first quarter, boasting of a 400,000 BBL/d increase in total production.
Midstream has been no different. Enterprise Products Partners LP (NYSE:EPD) (Houston, Texas) reported net income for the first quarter of $1.4 billion, a modest increase from the $1.3 billion from the same period last year, but growth nonetheless.
"Enterprise reported a solid first quarter as we benefited from record pipeline transportation and fee-based natural gas processing volumes and near record marine terminal volumes," Jim Teague, co-chief executive officer of Enterprise's general partner, said.
Enterprise reported total volumes of crude oil, refined petroleum products and petrochemicals increased 9.2% from year-ago levels, while the 2 million BBL/d sent to marine terminals on average represented a 25% increase from the first three months of 2022.
Increased flows through pipeline networks suggests production is profitable, even with depressed crude oil prices, and demand for products is holding up against recessionary fears.
But against the prevailing optimism that this won't be a repeat of the Great Recession from 2007-09, or the mini recession during the pandemic, there are fears on the horizon. With that in mind, the sector may be hoping for something of a Goldilocks price point -- not too high and not too low, but just right for decent operations.
Teague, however, is fretting that markets are moving a bit too low for comfort. "Across our integrated system we continue to see crude oil, natural gas and NGL production growth from the Permian Basin," he said. "Lower natural gas prices, however, are beginning to temper activity and growth in dry natural gas plays such as the Haynesville and Eagle Ford."
Global markets have largely adjusted to the war in Ukraine given the resilience of Russian supplies against Western-backed sanctions. OPEC+ erring on the side of caution, meanwhile, seemed the right move to make given emerging recessionary fears.
The solution to higher oil prices is higher oil prices, as costs eventually limit demand. The same would hold for lower crude oil prices, as cheaper products eventually incentivize demand. While $100 Brent might not hold, it remains to be seen how long market players will remain comfortable with the current status quo.
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 200,000 current and future projects worth $17.8 Trillion (USD).
Recessionary fears have not been supportive to crude oil prices, even amid tightening from OPEC+, the core members of the Organization of the Petroleum Exporting Countries and non-member state allies such as Russia. The group on May 1 started trimming 1.6 million barrels per day (BBL/d) worth of production, which a handful of analysts said should lead to triple-digit crude oil prices.
The price for Brent crude oil, the global benchmark for the price of oil, was trading near $76 per barrel on Tuesday, dropping further after a small retreat in the previous session. It traded as high as $87 per barrel as recently as April 12.
Louise Dickson, a senior analyst at consultant group Rystad Energy, said higher interest rates, along with higher lending rates, are increasing the likelihood of a recession, which could put a ceiling over the price of oil.
"The current pullback in oil prices -- below $80 per barrel of Brent, which has happened a handful of times since November 2022 -- is wrapped into recession fears as credit conditions in the U.S. and many other economies tighten, and uncertainty looms over the pace of Chinese demand recovery," she said.
Brent over the first three months of 2022 averaged $100 per barrel, about $20 higher than during the first quarter of 2023. That, however, has done little to bruise the pocketbooks of the energy majors.
Against the year-on-year slump in crude oil prices, Chevron Corporation (NYSE:CVX) (San Ramon, California), for example, posted total earnings of $6.5 billion, a 5% increase from year-ago levels. What's good for producers is clearly good for services companies, with Halliburton Company (NYSE:HAL) (Houston, Texas) reporting a 32% increase in total revenue from first quarter 2022.
More production is coming too. BP (NYSE:BP) (London, England), in reporting its second-largest quarterly profit since 2012, highlighted a slew of developments offshore. It started its first new project in the Gulf of Mexico during the first quarter, boasting of a 400,000 BBL/d increase in total production.
Midstream has been no different. Enterprise Products Partners LP (NYSE:EPD) (Houston, Texas) reported net income for the first quarter of $1.4 billion, a modest increase from the $1.3 billion from the same period last year, but growth nonetheless.
"Enterprise reported a solid first quarter as we benefited from record pipeline transportation and fee-based natural gas processing volumes and near record marine terminal volumes," Jim Teague, co-chief executive officer of Enterprise's general partner, said.
Enterprise reported total volumes of crude oil, refined petroleum products and petrochemicals increased 9.2% from year-ago levels, while the 2 million BBL/d sent to marine terminals on average represented a 25% increase from the first three months of 2022.
Increased flows through pipeline networks suggests production is profitable, even with depressed crude oil prices, and demand for products is holding up against recessionary fears.
But against the prevailing optimism that this won't be a repeat of the Great Recession from 2007-09, or the mini recession during the pandemic, there are fears on the horizon. With that in mind, the sector may be hoping for something of a Goldilocks price point -- not too high and not too low, but just right for decent operations.
Teague, however, is fretting that markets are moving a bit too low for comfort. "Across our integrated system we continue to see crude oil, natural gas and NGL production growth from the Permian Basin," he said. "Lower natural gas prices, however, are beginning to temper activity and growth in dry natural gas plays such as the Haynesville and Eagle Ford."
Global markets have largely adjusted to the war in Ukraine given the resilience of Russian supplies against Western-backed sanctions. OPEC+ erring on the side of caution, meanwhile, seemed the right move to make given emerging recessionary fears.
The solution to higher oil prices is higher oil prices, as costs eventually limit demand. The same would hold for lower crude oil prices, as cheaper products eventually incentivize demand. While $100 Brent might not hold, it remains to be seen how long market players will remain comfortable with the current status quo.
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 200,000 current and future projects worth $17.8 Trillion (USD).
