London, 10 August 2010

UK-based energy companies are ideally placed to exploit a steadily increasing commodity price, delegates at a Barclays Corporate seminar held in Aberdeen heard today (10 August). Key trends, outlined in Barclays Capital research, point to a steadily rising commodity price; decelerating US output due to the suspension of deepwater drilling activities; an increasing demand for oil and a weakening supply outlook.

Linzi Graham EU Commodity Sales, Barclays Capital, referring to the Barclays Capital research, told attendees at the Union Plaza event in Aberdeen that supply and demand levels in the oil market will become increasingly mismatched, as demand growth continues to outpace supply.

The research goes on to say that while oil prices are still allied to pessimism around the global economy, a steady rise in the oil price is expected, reaching $87 a barrel by the end of the year. Continued projected growth may herald a price of around $135 per barrel by 2015.

She said: “The fact that international air traffic is now back above pre-recession levels and goods movements are resulting in a rise in US trucking miles indicates a global recovery and US recovery respectively.

“The market outlook research shows that longer term oil supplies are potentially under threat – for example, through suspension of deepwater drilling in the United States and a weakening non-OPEC outlook. In addition, OPEC production capacity is expected to rise by less than three million barrels per day over the next five years.

“Having said that, demand growth in the second-quarter of 2010 was above two million barrels of oil per day for the first time in five years and there is a structural shift in the oil world – for example China’s demand is outstripping its supply by far.”

Jonathan Wilson, Barclays Corporate Oil and Gas Team’s business development director said the rise in the commodity price is good news for the oil and gas sector, potentially leading to a period of stability, growth and increased activity. A stable oil price will give confidence to the industry to initiate capital expenditure projects particularly given the prospect of growing profits and longer-term recovery.

He added that if the deepwater drilling activity suspension in the United States was renewed by the US government, following the Macondo spill, it may lead to companies looking to exploit opportunities elsewhere, including the United Kingdom Continental Shelf (UKCS) and in regions with operations led out of the north-east of Scotland, such as West Africa and Kazakhstan.

“The effect of the Macondo spill in the Gulf of Mexico may lead to a change in geographical emphasis for some companies but may also mean additional activities for the service sectors in terms of increased health and safety,” Mr Wilson said.

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