Business Outlook 2018

3.1 Oil Markets After starting 2017 at little over $50/bbl, the Brent spot price showed solid gains through the second half of the year surpassing $70/bbl in January 2018 for the first time in over three years, though it has since fallen back to $65/bbl. This has resulted in an average annual price of $54.2/bbl in 2017. Oil producers have benefitted from the upturn and any additional cash generation from existing operations will increase the likelihood of new capital projects proceeding on the UKCS. While new activity should be good news for the domestic supply chain, it must be acknowledged that the paydown of debt – prioritising returns to investors and overseas projects – will provide stiff competition for capital allocation within E&P companies.

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Figure 1: Average Monthly Nominal Brent Spot Price

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Average Monthly Nominal Brent Spot Price ($/bbl)

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2018

Source: EIA

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The recent rise in price has been driven by both supply and demand. On the supply-side, high compliance with OPEC production quotas and the gradual drawdown of oil inventories have had an impact. Oil demand grew by 1.6 million barrels per day last year, driven by strong real GDP growth of 3.6 per cent for 2017 1 as most of the world’s biggest economies outperformed start-of-year expectations. This has been complemented with a weaker US dollar increasing the purchasing power of global consumers of oil.

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1 Source: IMF Data Mapper

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