WorldOil

Volatility dominates the E&P market

For most E&P companies, 2006 has been a very good year. Commodity prices remain high enough to ensure large amounts of investment, and activity levels are at 21-year peaks. Nevertheless, oil and gas prices have been volatile, and operating costs are higher. 2006 summary. Several factors have affected the upstream industry’s performance this year. Some of them will continue to affect E&P activity in 2007: • Gulf of Mexico (GOM) hurricane-damaged infrastructure is now mostly repaired •Commodity price volatility is not going away •First, there was not enough oil, as production disruptions and fear of them ruled oil markets •Then, there was too much oil, as demand growth moderated, and high inventories mattered. OPEC had to defend prices via the first output cut since early 2004 •Oilfield services are in short supply, but this should ease as new equipment hits the market in 2007.