Steve Pastor
President of petroleum operations of BHP
Oil price uncertainty and volatility is one of the biggest challenges facing our industry. Oil markets have always been exposed to boom and bust cycles, but the frequency and magnitude of price cycles may be more acute in the future.
Oil markets have tightened, spare capacity has declined, and geopolitical tensions are rising, all of which could cause oil prices to spike in the near term. On the other hand, despite tightening credit markets, capital remains relatively available and inexpensive, and unconventional participants in markets in the United States are quite agile.
Adding to the uncertainty are these conflicting scenarios: If prices rise rapidly, low barriers to entry and the very high number of onshore players in the United States could cause cost inflation. Meantime, new production encouraged by a surge of capital and activity will likely cause oversupply and depress prices. Physical oil export constraints in the Permian Basin in Texas will likely restrain near-term production growth rates, but growth in inventories of wells drilled and completed but not producing to their full capacity, and oil price hedging, could exacerbate a downturn once export capacity bottlenecks are removed.
To address oil price uncertainty and volatility challenges, companies will need to set their priorities using thorough market analysis and scenario planning. At BHP, we’re building a pipeline of options that are robust across the range. We have a preference for investment and operational oversight at early stages of access and exploration, as this affords us maximum flexibility to adjust to changes including market conditions.