A Brent crude price pushing $70 will provide a “feel-good” factor for North Sea oil, but it may still be “too early to celebrate”, industry experts have said.
Prof Paul de Leeuw, director of the Oil and Gas Institute at Robert Gordon University, said for every dollar the oil price goes up by – if sustained over the course of a year – North Sea industry gets £275million in additional revenue.
Alex Kemp, professor of petroleum economics at Aberdeen University, said a Brent price above $60, never mind $70, would result in a “worthwhile” increase in cash flow for UK oil companies.
Brent, the global benchmark, nudged above $70 on Thursday for the first time since the early days of the downturn, before easing off to around $69.10 at 5pm yesterday.
Industry commentators said a reduction in stocks had tightened the market, strengthening prices in the process.
Opec’s recent decision to extend production cuts through 2018 has also been a factor, while political uncertainty in Iran has raised doubts about its supply capability.
The Forties pipeline closure, which held back the flow of huge quantities of North Sea oil every day for around three weeks, would also have had an impact.
Prof de Leeuw said: “Although it may take some time for the ‘feel-good’ factor to return, 2018 may well be the year of the ‘feel a bit better’ factor.
“For every dollar the oil price goes up by on an annual basis, the North Sea industry benefits to the tune of $380million (£275million) worth in extra revenues in 2018.
“If this price level is sustained for the foreseeable future, it will certainly help to re-build the confidence for new investment in the UKCS.”
Prof Kemp said the sector shouldn’t bank of $70 oil becoming the norm just yet, as increased US shale production shows signs of continuing.
Prof Kemp said: “The US Energy Department thinks their production will keep increasing this year so that in itself suggests we need to be cautious about $70 being maintained. There is still some potential for downside.”
Marc Gronwald, senior lecturer at Aberdeen University, said: “I believe it is too early to celebrate. The recent price increase was pretty steep and I am not sure how long some of the fundamental factors behind it will have an effect, in particular the drop in global supply.”