Oil Prices Hit 2-Year High: What It Means to Drilling Industry
Oil prices are in one of their longest bull runs in the last five years. Brent crude prices reached a two-year high on September 25, 2017.
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The international tensions between Turkey and Iraq along with strong crude oil demand from Asian countries boosted oil prices. Oil production cuts are also supporting oil prices. OPEC countries have cut oil production by 517,000 barrels a day since the beginning of the year. Since June 2017, oil prices have risen almost 30%.
Brent crude oil reached $59.02 per barrel on September 25, which was the highest since July 2015. The US WTI crude oil hit $52.2 per barrel on the same day.
Oil price forecast
Analysts have differing views on the future of oil prices. Russia’s Rosneft expects oil prices to average $40 to $43 per barrel in 2018. The EIA (Energy Information Administration) forecasts that Brent crude oil prices will average $52 per barrel in 2018. It expects WTI crude to average $2 per barrel lower than Brent crude oil prices.
Importance of oil prices
The fate of the offshore drilling industry is closely tied to oil prices. E&P companies’ current profits and expectations of oil prices in the future decide their yearly drilling budgets. When oil prices tumble, E&P companies shy away from giving new contracts to offshore drillers, which implies that lower oil prices are negative for offshore drillers (OIH) such as Noble (NE), Diamond Offshore (DO), Transocean (RIG), Atwood Oceanics (ATW), Ocean Rig (ORIG), and Seadrill (SDRL).