THE North Sea will be hit especially hard by cost cutting by oil and gas firms following the slump in the crude price which will only stabilise at $90 per barrel in 2018, a prominent investment bank has warned.
UBS said the high costs of operating in the deeps off the UK mean the area will be an obvious candidate for spending cuts as firms try to balance their budgets.
The bank noted that producers of shale onshore in the US could probably react fastest to the sharp fall in the oil price. Brent crude sold for $48.09 per barrel yesterday, compared with$115/Bbl in June.
Considering which parts of the world outside North America and the Organisation of Petroleum Exporting Countries should see severe spending cuts, UBS wrote:
"The lasting change in investment and production levels is likely to be in the areas of higher cost (such as the North Sea and some of the deepwater) and/or where capital becomes scarcer (we speculate Russia)."
The bank warned that prices could remain under pressure for some time following OPEC's decision in November not to play its usual role of defending prices by reducing quotas.
"The current selloff could take a bit longer than prior occasions and lead to a more muted recovery," said UBS.
Analysts at UBS predict prices will start to recover slowly in the third quarter of 2015. The build up of stocks could slow or reverse if firms cut production.
Prices will only stabilise in 2018, at a normalised level of $90 per barrel.
The Scottish Government assumed Brent would remain at $110/Bbl in making the case for independence in advance of the referendum in September.
UBS has cut its forecast for Brent crude in 2015 to $52.5 from $69.75 in December.
It has cut its forecast for 2016 to $67.50 from $80 in December. The Scottish Government assumed Scotland would become independent in 2016.
UBS reduced its estimate for 2017 to $80 from $85.
The bank notes much will depend on the actions of OPEC members, particularly Saudi Arabia.
"OPEC may prove to be too successful in choking off investment and supply and sub$50/Bbl prices may end up giving a very significant rise and rebound to the upside as the market finds itself rapidly under-supplied."
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