"It's difficult to make predictions, especially about the future." So use or flush.
I've lived through multiple gas and oil gluts before. It's de ja vu all over again. I've seen all the signs before and see the different things that could make this quite different.
I saw the US gas glut coming a lot earlier than most and expected the horizontal drilling/fracking technology to replilcate around the world, creating a global natural gas glut in a very short period of time. I expected there was a good probability the same technology could lead to a global oil glut not long after that but was less certain if that would occur. Here's what happened instead. The global gas glut has not yet happened for a few reasons. Globally there has been high resistance to horizontal drilling with hydraulica fracturing, especially in Europe and it is slowly spreading here. In other places like China, the targeted shales are different than the USA and not nearly as productive. So the gas miracle seems mostly limited to the USA so far. Also reportedly obtaining water for fracking in the quantities needed in these foreign places like China can be much more problematic. Lastly, the USA did not move to exporting LNG to any degree that could have initated a glut. Within a ~5 year period the USA transformed from being the number 1 world destination for planned LNG imports, to becoming self sufficient with over a 100 year supply, soley due to technology used by private and publicly trade oil companies to unlock shale gas. (Politicians had zero to do with it.) When gas prices plummeted in the USA due to the sudden gas glut, oil companies did a major pivot over several months moving away from dry gas fields to high liquids gas and oil fields, such as the Eagleford. Then they took the same technology back to very old West Texas fields. That in conjunction with other onshore oil drilling activity in e.g., the Baaken, resulted in huge increases in annual US crude oil production of the order of 1 Mln BOPD increase each year.. THAT EVENT which has been ongoing for several years now is the primary driver for the global oil glut. Energy officials have said we will be self sufficient in crude oil production (before the price collapse) in just a few years. No one saw this coming just a few years ago. Russians and others (Iraq and Libya) have returned to peak production. Canadian oil sands also are delivering. So the glut is here, but for how long?
I believe it could be very long term - years. Why? It's different this time. Onshore shale drilling can be turned up, down, off or on like a light switch in a relatively short period of time. That capability didn't exist just a few years ago. Conversely deepwater is a very long term investment and development period with some fields having lives up to 50 years and longer. So this low price environment may present lower cost field investment opportunities for deepwater companies to buy low and sell high. Construction costs will be dropping, rig costs will be dropping. Some may view this as simply a short term, advantageous blip in a 50+ year investment, i.e., just noise. So they will keep on moving forward with these new projects at least for the next 2 years. Some companies with deep pockets are looking for cheap reserves to buy, but with not too much debt attached to it.
The Saudi's state they will allow the price to float with supply and demand, but they (and thus OPEC) aren't going to reduce production. In fact some members are increasing production. Their stated objective is to allow the falling price to eliminate the high cost producers and reduce the global supply, leading to the return of higher prices. They may be seriously under estimating how long this will take. As I have always said, the best remedy for an oil glut, is an oil glut and the best remedy for high oil prices is high oil prices. When market forces are allowed to work, it becomes a self correcting market with stable pricing. The best outcome will be that the lower cost crude will result in a huge global economic stimulus for most of the world, which in turn, will increase energy consumption. So the Saudi's hope would be that the size of the demand pie will grow significantly so that they not only retain market share, but the size of the slice will be much bigger as demand could become much larger than ever before. But this will drive prices back up again. As noted, the US onshore business can quicky respond to higher prices to increase supply again. Also, Mexico, which has huge reserves is just in the early stages of opening its industry to international players for the first time. This could add very large volumes to the market. So there will be plenty of supply potential for many years to come. If these responses to price increases are rapid, as I think they could be, then we could see much higher price volatility, but a tendency to border on glut for a long time. And if Europe, China and Japan economies don't perform better, then it will be even longer. I'm agreeing with others that oil will go under $30. I expect it this year and soon. As we have seen it will drag the PPS of all oil and gas companies down with it. If you can call the bottom and wait it out, you can maybe make a whole lot of money.
I think the controlling factor (other than a major war or natural catastrophe) is availability of skilled technical staff. There is plenty of supply right now with PETE college classes at record enrollments (my daughter is one of them). The "Big Crew Change", an industry term for the massive wave of retirement (oilfield baby boomers) that is now in progress and will be for several more years, is being accelerated by this event. The most experienced people are leaving the industry permanently at a high rate. If low prices are sustained long enough then companies will sever tons of people and likely won't hire much if any young ones, and all these technical people will find jobs in other industries or just retire. So if low prices drag on long enought, then when prices do begin to rise, there won't be experienced technical staff available. No staff, no drilling, no production increase. It will take 5 or more years to rebuld the organizations with staff having enough competence to do the highly complex, technically challenging work. In this scenario, if the global economy is hot from the economic stimulus of low oil prices especially, then we could see the pendulum rapidly move to the other extreme with unprecedented high prices (in real $), that would make $100 oil look cheap. And of course very high prices would create a huge oil boom for several years, until the cycle repeats. And on and on. Gluts come and go.
At some point the world is going to wake up that consumers are spending all of this extra cash everywhere they go, every day, and it just might spark an economic boom. It could happen very fast, unless some other kind of very bad news precedes it and derails it (e.g., deflation fears in Europe).
Lastly, with a global oil glut and a gas glut in the USA, what is everyone focusing on? What's left? Natural gas to Asia while prices are good. So some day a glut will arrive there, and based on the recent events, it's likley much sooner than I think. We already have read of sharp spot price declines. The hope is that global growth with get ahead of the energy supply and stay ahead of it. However, technology is getting better and better at creating excessive supplies and improving efficiencies while stupid people all over the earth are driving the nations into deeper and deeper debt.
The low cost producers will reign, but the competition will be tough. IOC/Total appear to have a good shot, but time is of the essence. This could be a great time for them to build a plant with other LNG plants being cancelled and presumably construction costs should be falling. Catching a lower cost capital investment cycle and thenstarting production just as an oil glut is ending would be sweet.
It's very different this time.
Kaliboo
Use or flush.