While nowhere near all-time highs, crude oil prices have stabilized somewhat and the industry is poised to repair balance sheets as cash flow recovers in2010. Gianna Bern of Brookshire Advisory and Research Inc. has penned The Brookshire Report: Oil and Gas Outlook with some insights into 2010. Here is an excerpt of the report. The entire four page report can be found at PennEnergy.com here.Big Oil Consolidates, Rebounds in 2010
As we enter 2010, the industry can breathe a sigh of relief as crude oil prices appear to have stabilized in the $75 to $85 per barrel range. While current crude oil prices aren't great from the industry's perspective, the range permits it to repair balance sheets and continue investment programs as cash flow generation recovers in 2010. Throughout the oil and gas industry in 2009, cost structure reduction was a focus, but for the savviest it was a means – not a goal. While some producers were able to rein in costs better than others, those that maintained financial flexibility and had cash reserves or investor financing made opportunistic acquisitions and are better poised for growth as economic recovery strengthens.
A year of moderate revenue growth and improved cash flow generation is expected in 2010, as the industry adjusts to stabilized crude prices near $75 per barrel or a 22% increase in crude prices over 2009's average of $61.60 per barrel. In 2009, the collapse of crude oil prices resulted in increased leverage levels and some moderate cash flow pressures throughout the energy value chain as both consumer and industrial demand for crude products faltered. The global economic crisis appears to have abated resulting in a muted recovery for the oil and gas sector.
Crude oil and refined product inventory levels are high, relative to five-year averages, effectively placing a $85 per barrel ceiling on crude oil prices. While crude reached a recent high of $82 per barrel in October 2009, crude oil prices don't appear to be poised to break through the $90 per barrel level unless there is sustained economic improvement resulting in crude inventory declines, or a dramatic weakening of the US dollar. The current exuberance in the crude market is not supported by the fundamentals, but primarily driven by recent highs in the equity markets and positive economic news. We don't believe the current crude prices are sustainable given market fundamentals.