HOUSTON – The slow but steady global economic recovery is still intact, and absolute oil demand has changed little despite fears of oversupply that have sent crude prices hurtling downward in recent days, Schlumberger’s chief executive told investors on Friday.
“We expect Brent to recover and stabilize,” Schlumberger CEO Paal Kibsgaard said in an earnings conference call. “Oil demand is currently set to increase by 1.1 million barrels per day in 2015, which will require growth” in exploration and production investments.
Spending levels by oil and gas producers is the metric oil field services companies like Schlumberger live by, and the recent slide in international and U.S. crude prices has stoked fears that investment levels will taper off next year, as European and Chinese economic data show a picture of slowing demand.
It’s not a trivial issue for Houston: The biggest employers in the oil industry are typically the oil-field firms that provide equipment and services in oil patches across the globe.
But Kibsgaard, head of the largest oil field service firm in the world, said Friday that a recent downward revision in global gross domestic product was only a slight correction of 0.2 percent in growth for both 2014 and 2015. Forecasters believe the global economy is still on track to grow 3.7 percent this year and 3.2 percent next year, and that’s a good bet given the strength of the U.S. economy and efforts to stimulate and manage growth in Europe and China, he said.
And absolute oil demand, according to the International Energy Agency, is only down 200,000 barrels a day from its peak in July, and daily oil demand is still expected to rise from 92.4 million to 93.4 million barrels next year.
“We see the demand side of the oil market as more or less unchanged,” he said. Not much has changed on the supply side, either, he added.
The Organization of the Petroleum Exporting Countries’ spare production capacity is down 800,000 barrels a day in September compared to last year. Non-OPEC countries have faced challenges in oil production, and geopolitical risks remain in both Iraq and Libya, he said.
“With the growth in demand next year, we believe that there has to be increased spending levels,” Kibsgaard said. “Where this spending is going to take place I think is going to be a function of where the oil supply stabilizes. At the lower oil price we believe more of these investments will take place in lower operating cost environments.”
Schlumberger, which has its main offices in Houston, Paris and The Hague, reported profits rose 13.6 percent in the third quarter to $1.95 billion, or $1.49 a share. The increase came largely from strong sales in its segment for post-drilling production processes such as hydraulic fracturing in North America, while sales remained flat in the Middle East and Asia as troubles in Iraq offset growth in Saudi Arabia and Oman.
Kibsgaard said Schlumberger has expanded its position in artificial lift market through acquisitions in North America, and is on track to sell 7,000 pump jacks in the United States and Canada.
During the conference call, an analyst with Credit Suisse said U.S. independent exploration and production companies are likely most at risk of reducing their spending if oil prices stay low, and asked Kibsgaard if the pressure pumping business could be threatened in a slower market.
Kibsgaard said pricing for pressure pumping will depend on activity levels, and it’s too early to tell what will happen in 2015.
“If we see recovery” of U.S. crude prices, “ and we also see a limited cost inflation in the exploration and production value chain, I think these are the factors that would support further spending growth,” Kibsgaard said.
Schlumberger shares climbed $6.31 in early trading Friday to $96.95 on the New York Stock Exchange.