Report: Iran deal means oil prices to stay low for foreseeable future
Many in the oil and gas industry already expect this downturn to last longer than the one from 2008, but the recent nuclear agreement between Iran and the West makes that a certainty, according to a new report from consulting firm Maine Pointe. The addition of Iranian oil to an oversupplied market means oil prices are likely to remain low for the foreseeable future, the report stated. “As a result of the nuclear deal with the West, new flows of Iranian fuel could hit an already oversupplied market in a matter of months. A Reuters poll of 25 oil analysts from leading banks and brokerages forecast that Iran would be able to raise oil output by between 250,000 and 500,000 BPD by the end of 2015,” according to the report, titled “The New Reality in the Oil and Gas Industry: How to Survive in an Oversupplied Market.”
Looking specifically at North America, the report cited the US Energy Information Administration as predicting that US crude oil output for 2015 is “on track to be the highest in 45 years.”
“What we are seeing this year and into 2016 will strengthen North America’s position as a global swing producer,” the report stated.
Maine Pointe also indicated that many companies missed opportunities during the previous downturn to address core issues surrounding cost efficiency. While the industry has demonstrated an ability to find innovative ways to reduce costs, companies are still overlooking areas where they can lower costs and generate savings. According to the report, “Lower oil prices are the new reality, so now the fundamental challenge for executives is to identify further areas for operational improvement to protect and enhance their profit margin.”
One such area is procurement. Often, companies’ procurement processes “leave millions of dollars on the table,” the report stated. The company advises executives to examine where their procurement team and process fall on the maturity curve.
One of the more common and unfortunate cost management solutions is layoffs. The challenge of “doing more with less” in terms of people will be exacerbated by the retirement of baby boomers, the report said. When they retire, they take previous experience and insight on how to face the economic issues the industry must grapple with today, “leaving a vacuum of talent and industry insight.” As a result, one of the biggest challenges for companies will be finding new ways to optimize their people and teams.