Producers Who "Used to Make Money at $25 Oil" Ignore Gloomy Outlook for Brent in 2018

Exploration and production spending is expected to increase "modestly" next year.

As crude enjoys a momentary surge this week on talk that the Organization of the Petroleum Exporting Countries (OPEC) will better enforce its output curbs and may even deepen them, a JBC Energy GmbH analyst warns that anything short of the cartel delivering will cause Brent to drop to $40 or below per barrel in the first quarter of 2018.

Richard Gorry, managing director at JBC Asia, told Bloomberg that Brent will end this year between $45 and $47 per barrel, after which due to the end of the summer driviing season consumption will weaken and the market may turn "very tricky."

He added, “Brent could go to $40 and even below; that’s not necessarily what we’re forecasting, but we don’t know where exactly the market is going to trade and how bearish it’s going to be.”

Gorry went on to explain that if OPEC doesn't toughen up and the same output restrictions are maintained in the first quarter of next year, "we’re looking at a lot of surplus in the market; to really tighten the market, OPEC will have to cut more, and I don’t know if they want to do that.”

Gorry's outlook is yet another contribution to the gloomy forecasts many analysts have offered for crude in both the short and long term - but leave it to the big oil producers to shrug off the warnings and forge ahead with expectations they will be able to do more with less.

That is the stance taken by Exxon Mobil Corp. and Royal Dutch Shell Plc, which are scheduled to more than double second-quarter profit from a year earlier, according to  estimates compiled by Bloomberg.

The news agency also reports that Chevron Corp. will return to profit, and France’s Total SA will post a third consecutive quarter of higher year-on-year earnings.

Bob Dudley, chief executive officer for BP, said, “We have to remain very disciplined about spending and not assume that the price will go up; the years of $100 oil will turn out to be an aberration.

"We used to make money at $40 oil, we used to make money at $25 oil.”

Further positive developments come in the form of producers now proceeding with projects they began before the crude downturn, including BP in the North Sea and Eni SpA in Africa, and the International Energy Agency says the industry is expected to increase spending “modestly” in exploration and production projects this year after a 44 percent plunge between 2014 and 2016.

This week's crude price increases are yet another temporary blip in a market that's largely range-bound, and Vandana Hari, founder and CEO of Vanda Insight, warned that the underlying cause for the uptick - OPEC's vow to crack down on renegade producers - is false, and that the numbers being discussed by the cartel as a ceiling will actually accept the extra crude that these countries are dumping onto the world market.