Rising development costs push up oil futures curve

Rising costs for oil companies are driving up prices for crude oil futures through 2016, keeping supplies struggling to match growing oil demand outside the United States.

Despite worries a potential recession could clip U.S. demand, forecasts for increases from other OECD nations and emerging markets like China should counter tepid growth in the world’s top energy consumer.
The increase in consumption will come as increasing finding and development costs trim supply growth from energy companies, according to experts, driving up price expectations over the next few years.

“The continued strength of long-dated prices amid ongoing industry cost inflation poses, in our opinion, the strongest upside risk to our forecast,” Goldman Sachs said in a report.

Analysts said the rise in part reflects the rising costs energy companies must pay to pump oil in producer nations within and without OPEC. Countries such as Venezuela and Russia, flush with profits from high oil prices, have tightened contract terms for access to their vast, low-cost reserves.

In addition, mature fields are producing and requiring more investment to maintain output, while rising labor and material costs are also bolstering company expenses.

Reuters