Oil price increase still a ways off

In August, platform supply vessel demand picked up a bit with offshore hurricane preparation and evacuations. Still, according to IHS Markit’s MarineBase, offshore service vessel demand was only 22.6% in August, compared to 30.4% a year ago.

Since February, OSV demand has been sliding fast losing about three term charters per months as rigs rolled off contract. August reversed the downward trend, but only temporarily. More rigs and vessels are expected to finish drilling programs as we complete the year. Rig contractors believe things will pick up again in the second quarter of 2021, after the elections.

Oil prices are expected to stay below $50 bbl. until 2021, when we expect prices to hit the mid-$50s per barrel. Slow improvements in oil demand are expected, but outbreaks of Covid-19 could send prices south. We are currently in a very iffy environment to decide on new investments.

Recent hurricane damage to offshore installations could drum up new vessel demand, but I haven’t heard anything yet. Back around October 2008 there was still a lot residual hurricane damage keeping vessel demand at near capacity (all available boats working). That was when I first started monitoring offshore activity. The problem is that no one has any money to spend on offshore projects and investors have soured on new oil and gas investments. If we keep seeing a drawdown of the massive oil glut, oil prices should continue to improve.

Latin America is where we are seeing continued investment in offshore development. In South America OSV utilization was 66% in August, compared to 22.6% in the U.S. Gulf. The large oil fields in South America are proving to be highly profitable. Some of these deepwater oil fields can achieve lift costs of $25 bbl. when the production facilities reach full capacity.

Some analysts think the severe lack of new oil and gas investments will eventually send oil prices soaring, but I think we have a ways to go to work down the glut of oil held in storage around the world. Our analysts at IHS Markit believe natural gas prices will go up in the near term. Onshore oil production produced an abundance of gas which had kept prices low.

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