North Sea Supply Chain & Falling Oil Prices
The topic of falling oil prices has been in the news considerably in recent months, with most consumers seeing the obvious fall in petrol prices. However, it's not just the typical consumer who is seeing the benefit of falling oil prices.
Zoedale are suppliers of valves, electric actuators and pneumatic actuators and one of our focus industries is Oil and Gas, so we've been watching the falling oil prices and its repercussions with interest. Looking at the graph below, it is clear how significantly oil prices have fallen since last August 2014 from north of $100 a barrel to $47.36 for Brent Crude and $45.90 for US Crude.[caption id="attachment_1299" align="aligncenter" width="560"] Falling Oil Prices since August 2014[/caption]
So, what does this mean for those in the North Sea supply chain? For most of us it's good news, hopefully! The continuous falling price seem to be having a positive impact on suppliers to the North Sea, particularly smaller "Tier 2" suppliers.
In boom times, multi national oil companies have no incentive to shop around for better deals as they just want to stick with what they've always done and keep things simple. When profits are squeezed however, it’s a different story. Oil producers need to stay profitable so costs, time scales and efficiency of products are all under review - giving smaller, less well known suppliers a chance. There are two reasons why companies will do these cost cutting / efficiency drives. One is to actually cut costs and become more efficient and the second is to satisfy their Investors & Stakeholders that they are doing everything they can to weather the storm.
Recently, Zoedale has seen an increase in enquiries for valves and actuators for north sea oil and gas use, some of them from organisations we have tried to supply in the past and failed. Cost and life expectancy of product is of real importance as well as knowing you’re dealing with a supplier who holds stock, is reliable and is going to be able to cope with supply demands.
Sean Brodrick, Resource Strategist at The Oxford Club states: "I believe the price of West Texas Intermediate, the U.S. crude oil benchmark, will remain under $50 for the rest of the year." (At time of publishing US Crude was at $62.17 a barrell but still an interesting statement).
The latest monthly report from the International Energy Agency (IEA), stated that; "Oil prices are likely to stay at around $60 a barrel or lower for the next two years as US shale extraction continues to suppress prices....Despite expectations of tightening balances by end-2015, downward market pressures may not have run their course just yet.”
If you're a main tier 1 supplier and you're being squeezed on margins we appreciate this is not good news for you. For the rest of us however, the falling oil price has presented some interesting opportunities we are keen to exploit.