Insight
Is oil price volatility a threat to upstream production, investment and supply chains?
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Report summary
Is the recent oil price volatility a threat to production, upstream investment and its supply chains? Oil and gas company share prices have fallen by an average of 15%, with US-focused E&Ps the worst hit. We now expect global upstream development spend to fall year-on-year for the first time since 2020. We assess the impact of global turmoil and trade wars on upstream supply, investment and costs.
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What would lower oil prices mean for investment and supply?Prices would need to fall much further before material flowing supply is threatenedUS Lower 48 crude production will be impacted slightly, even at current prices
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The industry is far from survival mode, but some will be more concerned than othersCapital allocation decisions are made based on portfolios and overheads, not SRMC’sUpstream spend likely to fall in 2025, for the first time since 2020At US$65/bbl, current prices aren’t low enough to send the US rig into a steep fallDespite robust economics, some projects will be delayed due to ongoing uncertaintiesThe US’ tariffs created a chain of consequences for operators and their supply chainsUS-specific: project delays are a bigger risk to valuations than tariffs in the Gulf of America (GoM)US-specific: tariffs limit the chance of continued Lower 48 well cost deflation this yearUS-specific: Lower 48 oilfield service rates would soften to offset activity pullbacks
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