Despite Price Gains, Producers Plan For "Lower-for-Longer" Norm of $65 Oil

Further consolidation characterizes what analysts call the final phase of a five-part oil cycle.

While analysts predict oil will either drop to the $30 level or exceed $70 in the near future, producers are quietly planning for a "lower for longer" environment of $65/bbl oil.

Yahoo Finance notes that merger and acquisition activity has been particularly brisk in recent years, with Siemens acquiring Dresser-Rand for $7.6 billion and Schlumberger acquiring Cameron for $14.8 billion, both in 2014.

FMC Corp buying Technip earlier this year is the latest acquisition of note, and this prompts Fadel Gheit, analyst for Oppenheimer, to predict further buyouts and mergers later this year: "Consolidation is always the last phase in the oil price cycle, as companies revise their business model to survive in a lower for longer oil price environment."

Gheit elaborates: "Oil producers are adjusting their capital spending budgets to cope with the new realities for a new 'normal oil price' of around $65 per barrel level.

"Significantly higher or lower prices are likely to trigger market response, and the price becomes self-correcting."

Ship & Bunker data suggests that at such a level, IFO380 bunker prices in the primary ports would be around around $295 to $320 per metric tonne, some $50 to $70 higher then where they are today.

Gheit describes the five phases of the long oil cycle as being shock, followed by denial; panic; capitulation; and consolidation, and he points out that as prices stabilize close to the new normal, "the bid-ask gap will narrow and consolidation will accelerate; surviving companies will be more resilient to low oil prices."

Reportedly, names being discussed as ripe for consolidation include Seadrill; National Oilwell Varco; Weatherford; Oceaneering International; Diamond Offshore Drilling; Patterson-UTI; Nabors Industries; and Rowan.

Earlier this week the sentiment of the analytical community shifted towards a general agreement that oil prices may have hit their peak, due partly to Chinese demand reportedly poised to "fall off a cliff."