While the WTI price for a barrel of oil is down this week from where it was just a few weeks ago, it is still hovering above the $65 USD mark, a level which hasn’t been seen since late 2014. With the price above where many expected it to be this year, some are wondering when the complete upswing in the oil patch is going to take effect.
Dan Cugnet is the chairman of Valleyview Petroleums. He said it all comes down to how long the prices have been up above the forecasts compared to any increases in the economy.
“It’s been very nominal here so far, and part of that is there just hasn't been enough length in time into this bounce in oil prices,” Cugnet explained, referencing primarily the oil service sector of the patch.
This doesn’t mean there haven’t been any increases in activity. Drilling and construction activity has been increasing in the region, and this will have an impact as time goes on. Cugnet said the prices need to stay up longer in order for the trickle down to have an impact.
Another factor for many has been the hedging of prices or locking in. Many companies locked in at a lower price based on the forecast, so for some of them, up to 50 percent of their barrels are being sold at a lower price compared to what the current spot market is currently at. This results in a lower revenue stream for the company, compared to what many would perceive as what it should be compared to the price.
“Inventories dropping to five-year average levels, and the other part of it, when we’re seeing it go down, is a lot of the geopolitical things that are happening in different parts of the world,” are part of the reasons for the fluctuations in the price added Cugnet, citing sanctions against Iran, trade issues around the world, a production decline in Venezuela and a production increase in Libya as factors which are making it difficult for experts.
Some forecasts for the price of oil do show it to continue to increase throughout the year, with an average WTI price per barrel of $73, but falling back below $70 a barrel in 2019.