There is no doubt that we are heading to slowing supply growth, according to Goldman’s expert. Venezuela’s oil production continues to decline, the heat on Iran could remove up to 1 million bpd off the market depending on how some countries like China react, Libya remains in a constant state of unpredictability, and U.S. supply growth is constrained by infrastructure—taken all together, Vigna sees those factors as “a substantial risk to supply.”
Amid this expectation for a tight oil market, Big Oil firms are now back to being the ‘oligopolies’ of mega projects, a position they last held in the 1990s. No one else can finance big developments, Goldman’s Della Vigna said, noting that Big Oil now could use their stronger position to negotiate improved tax terms with governments, and improved terms with the oilfield services providers.
According to Della Vigna, Big Oil as a whole enjoys an ‘oligopoly’ now, re-emerging in stronger positions like they were in the 1990s, so investors will want to own Big Oil stocks these days. In this ‘age of restraint’, you’ll want to own both the commodity and Big Oil, Goldman’s expert said.
Goldman Sachs—which has been bullish on oil for most of this year— said in mid-July that it continues to expect that Brent Crude prices could retest the $80 a barrel threshold this year, but probably only late in 2018, not this summer, as uncertainties mount over the timing and magnitude of global supply disruptions.
Della Vigna, for his part, has been expressing bullish views on the major international oil companies for nearly a year. Last September, he said that in the dizzy spending days between 2010 and 2014, when oil prices were above $100 a barrel, the high prices were actually “dreadful time” for the international oil majors, because everyone was eating the lunch, and Big Oil’s competitive positioning was destroyed. Now Big Oil is in a renewed competitive position because there is competition for new capital investments, which means lower production taxes, much lower production costs, and easy access to resources, according to Della Vigna.