What do oil and gas companies do now? Mitigating the risks in an uncertain market

Looking at the market, the challenges and opportunities presented by market conditions, as well as delving into more detail as to how to address some of those challenges and opportunities.

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Written by: Stephen George, Kevin Smith

If you read the press you know that there is no shortage of theories pertaining to the price of oil and the associated impacts to the overall market. For all those whose crystal ball is working and are confident in the prediction of the future of the oil price, we wish you the best in your lucrative and early retirement. For everyone else, it’s not a matter of certainty but a focus on playing the odds. In order to safely risk your money in this market, it's important to understand the various scenarios that can play out in the oil market and look for improvement strategies that play the odds on addressing the most likely ones.

The obvious first question is what are the “likely scenarios”? For oil price, there are theories that place us below $10/bbl and a few that put us back well above $100/bbl, but the prevailing thinking is “lower for longer” but not rock bottom for longer. The consensus view seems to be that the price will bounce back from today’s price of around $30/bbl, but not back to anywhere near $100/bbl for those who might be holding out hope. While not the forecast that most of us in industry are hoping for, it does provide a platform from which many in the industry can still be profitable if they manage the operations well. For product pricing, the near future most likely sustains continued healthy gasoline pricing but weaker pricing for other products, meaning that for many refiners their margins are not optimal but they are still making money with the potential to make more if they are able to optimize refining yields.

In order to have a view on what actions to take in response these scenarios, it is important to first look at the key market drivers behind them, and based on those drivers start making business decisions that play the odds. This paper and the KBC paper series that will follow over the coming weeks and months will stay on top of the market and the challenges and opportunities presented by market conditions, as well as delving into more detail as to how to address some of those challenges and opportunities.

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