THE chief executive of BP, Bob Dudley, has said the oil and gas industry downturn is as bad as the slump of 1986 and warned the crude price could fall further.
Mr Dudley said oil prices could come under renewed pressure in coming months with Iran set to export huge volumes of oil following the lifting of sanctions on the country.
“The first and second quarter will be very difficult... It is a big shock for producing countries. It reminds me of 1986,” Mr Dudley told reporters at the World Economic Forum in Davos.
Brent crude fell to a record low of below $10 per barrel in 1986. This followed a period of high prices which encouraged firms to invest in growing production only to slash spending in areas such as the North Sea when the market turned.
The current downturn has followed a similar pattern.
Companies have shelved projects and laid off thousands of workers in response to the fall in the Brent crude price, from $115/bbl in June 2014 to around $28/bbl yesterday.
Last week BP announced plans to shed a further 600 jobs in the North Sea, where it cut 300 posts in January last year.
Mr Dudley emphasised that he expected oil prices to remain low for a long time.
However, he held out hope that prices may start to increase later this year.
“Prices will remain low for longer but not forever,” he said. The market may rebalance as cuts in investment result in production falling.
In a report on the implications of the oil price fall PwC advised firms yesterday: “No matter how tempting or pressured it gets, avoid arbitrary cost cutting.”
The accountancy giant said oil and gas executives would have to help their firms navigate one of the most volatile periods in the industry's history. They will have to consider how to respond to the issues of over-supply and increasing competition in the market during a period when there is increasing pressure to reduce carbon emissions.
Andrew Clark, a partner in PwC's energy practice, said:
“As we enter a second year of low oil prices, every industry operator will be challenged, albeit in different ways.
“It’s vital that our oil and gas chief executive officers rise to the occasion, identifying robust strategies that will enable them to reposition their firms and capitalise on their current market-leading strengths as well as future opportunities."
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules here