By Ray Hankamer for REDNews
Takeaway: While supply and demand in oil and gas seeks equilibrium, the various commercial real estate segments will adjust according to their own, different cycles.
Daily supply of crude oil only exceeds demand by about one per cent, and demand worldwide is growing at approximate one per cent per year-so the balance is not far off; however, only one per cent imbalance was enough to send prices plummeting from $100 to $30!
Worldwide supply has been stable for last few years and is slightly declining due to aging infrastructure and political situations in producer countries other than the US
Supply growth has been almost exclusively in the US, where “the spigot can be turned on and off quickly” in response to market forces
Shale production takes huge capital outlays during drilling and ongoing throughout the life of the well, creating lots of work for oilfield supply companies
Capital outlays have come mostly from private equity and lender services, less from banks-so “the banks are not in trouble” overall
Shale oil production got started 2009-2012 and really built momentum, zooming up in 2013-2015 causing present oversupply
With all the boom in shale oil, the US still imports about 40% of its needs, so relations with countries like Saudi Arabia are still vital to us-our exports of oil are tiny in the overall equation and it is a question of exporting certain grades to certain offshore refineries
Rig count at all-time low of 600, going to 500-this is from peak of 2,200 rigs-this represents huge hit to service companies in the Oil Patch
The “fix” to the supply/demand imbalance is already well underway, and by the end of this year prices around $60 per barrel are predicted, going to $70 in 2017…but, “this could be wrong”
Asian economies are continuing to grow and transportation and demand for fuel is growing too
Iran production will not be a big factor, but it has been a scare factor to the market
“Falling demand for petroleum products” in Asian countries means only that demand there will grow at 15% per year and not 18%, so not a consequential negative
Shale oil wells deplete 30-40% each year from the previous year, unlike conventional wells, so new drilling must continue for overall production to stay even
Demand worldwide for Liquified Natural Gas continues to grow and exports will increase
Pipelines cost half as much as rail to ship petroleum products and with lots of pipelines under construction, most basins in US will be “overpiped” by 2016
Some pipelines are being built to export natural gas to Mexico, but Pemex is experiencing managerial and financial weakness on its end, delaying progress
Office Market: vacancies rising in sub-markets where O&G layoffs are happening, and lots of sub-lease space is coming on market, putting downward pressure on rates
Hotel Market: starting to see weakness as supply of rooms catches up, just as demand from O&G business travel slacks off
Retail Market: still strong and playing catch-up; some regional malls being renovated/reconcepted
Industrial Market: still strong with vacancies up only from 4 to 5%
Multi Family: WAY overbuilt, and net absorption at zero with almost 30,000 units still under construction-ouch!
Single Family: still only about 3.5 months inventory in re-sale market; demand for new homes and lots remains good
Construction prices still high and contractors still have backlogs
Positive job growth in Houston predicted this year in the 21,000 range-as high salaried O&G jobs shrink, lower pay hospitality and leisure and government and medical and education job openings will grow
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