Macroeconomic factors

The list of external factors influencing the production and development decisions of oil companies has grown.

Key external decision drivers for oil companies with regard to their production and growth as well as key factors behind their financial performance are as follows:

  • Quoted crude prices,
  • Quoted prices of fuels and petrochemical products,
  • USD exchange rate,
  • Growth rate of the global economy and world’s leading economies (USA, EU, Japan, China, India, Brazil and Russia),
  • Growth of global crude output in OPEC and non-OPEC countries,
  • Production reserves in OPEC countries.

Since mid-2014, this ‘classic’ list of macroeconomic factors has featured two new additions:

  • Growth rate of non-conventional oil production (in the USA and Canada), and
  • Costs of exploration and production activities.

Those two factors deserve special attention for two reasons. First of all, the supply of oil from unconventional sources has increased substantially, being the key structural reason behind the slump in crude prices in mid-2014. A strong interaction between unconventional oil output and crude price movements results from the super-short production cycle, counted in days rather than in years (as in the case of production from conventional sources). The average time necessary to launch unconventional oil production is only 90 days vs. 3-5 years needed for the development of a shallow water oil deposit or 8 years for deep-water offshore oil production. This has also contributed to the fast-growing oil supply in non-OPEC countries. The second factor is costs of exploration and production activities, currently being the key driver of target crude price which balances expected demand and supply.