(MENAFN- Khaleej Times) Despite a drop in oil prices, industry executives are sanguine about the growth prospects for 2019 as more companies intend to maintain or increase capital spending after years of austerity to meet demand for oil and gas.
According to a global survey by DNV GL, 70 per cent of oil and gas industry executives plan to maintain or increase capital spending in 2019 as compared to 39 per cent in 2017.
DNV, a technical adviser to the energy industry, surveyed 791 senior professionals from firms with annual revenue ranging from $500 million or less to those earning $5 billion and more.
"Despite greater oil price volatility in recent months, our research shows that the sector appears confident in its ability to better cope with market instability and long-term lower oil and gas prices," said Liv Hovem, who heads DNV's oil and gas division.
"For the most part, industry leaders now appear to be positive that growth can be achieved after several difficult years," she added.
Those expecting to sustain or increase operating expenditure also grew to 65 per cent in 2019 from 41 per cent in 2017. In addition, 67 per cent believed more large, capital-intensive oil and gas projects would be approved this year.
In order to increase output, the GCC and global oil firms have announced plans to pump billions of dollars with Saudi Aramco planning to invest $79.6 billion, Adnoc around $132 billion, Chevron around $20 billion among others. It is predicted that $210 billion will be spent on oilfield services alone in 2020.
The DNV study found that over the longer term, major operators are planning their spending strategies based on a long-term oil price of $50-$60 a barrel and this likely means that short-term volatility will not stall the capex plans that were put in place in the more stable first 10 months of 2018.
However, most of the analysts said that energy firms will have to increase their capital expenditure to maintain the current output level - or to increase production if needs be - because the oil firms had cut down on investments in new projects during the low oil prices. Majority of analysts expect oil price to average between $55 and $70 a barrel due to slower global economic growth for 2019. Due to global trade war concerns and slowing economies of China, Germany, Turkey an EU, IMF on Monday revised down global economic growth forecast for the existing years and the next.
Edward Bell, commodities analyst at Emirates NBD, said they revised Brent price forecast to $65 from $73 with demand slowing and remain below its long-run averages. "In major consumers oil demand is set for considerably slower pace of growth."
China's economy - which is the main driver for the global economy - saw its growth slowing to 3-decade low in the last quarter of 2018. As per International Energy Agency projections, oil demand growth is projected to underperform its long-term trend in 2019, expanding by 1.41 million a day compared with a five-year average of 1.53 million per day.
BofAML analysts are betting that Brent rises back to $70 per barrel which was trading at $61.51 on Tuesday evening, down $1.23, or 2 per cent.
Isaam Kassabieh, senior financial analyst at Menacorp, said during a recent interview that there was downward pressure but the current crude prices are fair for the time being and there will be stable movement.
"It is fair to say that oil will trade between $55 to $65 during January 2019. Iranian statement of new buyers and independent audit for Saudi Arabia's statement about its reserves could prove negative for oil but dollar's stopping its surge and Opec production agreement will also be positive for the crude," Kassabieh added.
Lukman Otunuga, research analysts at FXTM, had said that oil prices were elevated by dollar weakness and optimism over US-China trade negotiations easing tensions between the world's two largest economies.
"While the commodity is seen extending gains in the near-term amid the improving market mood, gains remain limited by supply and demand dynamics. Oversupply fears coupled with concerns over falling demand are poised to create headwinds for oil bulls down the road. WTI Crude has scope to venture higher but remains capped below $54," he said.
Otunuga of FXTM noted that geopolitical risks, global growth fears, China's economy, and the dollar's performance are likely factors seen influencing oil.
"If geopolitical risk factors fuel risk aversion, oil markets will be one of the many casualties. Although a weaker dollar amid US rate pause speculation may offer oil prices some support," he said.
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