Halliburton President Jeff Miller recently provided investors with some unique insights into the oil market on the oil-field services company's fourth-quarter conference call. Here arehis comments on supply, demand, and the history of oil market downturns, which offer a significant clue on when the market could turn around.
Oversupplied?Miller began his comments by comparing the current oil demand forecast against potential supply:
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That projected 900,000-barrel demand increase makes clearthe world has not suddenly abstained from using oil. It might be using less than supply at the moment, but that moment could quickly pass as production peaks and then naturally falls. That process is already under way in a number of countries, and U.S.production could peak and begin to decline in the second half of the year.
This actually could be a big problem if oil companies underinvest in the years ahead, according to Miller.
It's quite possible a sustained period of low oil prices could eventually cause a price spike, asoil companies can't quickly ramp up production capacity to meet demand should it grow faster than forecasts currently predict.
Looking at rhyme and reasonMiller then addressed the history of oil market busts: "We can look at previous cycles for insight. And while history doesn't always repeat, sometimes it rhymes."
He added that:
So history suggests the rig count for this downturn will bottom out overthree quarters, meaningthere is likely still significant uncertainty to muddle through. That said, U.S. rig counts are widely seen as a key to finding a bottom in the oil market.
Miller then turned his attention to international markets, which behave a little bit differently.
While the international market usually is slower to react than onshore markets in North America, producers did reduce spending earlier than normal this time around. Some of that had to do with the out-of-control offshore costs in recent years, which had already ledproducers to startcutting back when the economics began to worsen, a process that has only accelerated as oil prices plunged.
Investor takeaway All of this suggests the current downturn is right on schedule. While this doesn't mean the downturn willbe short, it does indicate producers should have a lot more clarity on the situation by the second half of this year. That claritywill make it much easier for everyone to plan for the future.
The article Halliburton Company Gives a Clue on When the Oil Market Might Turn originally appeared on Fool.com.
Matt DiLallo has no position in any stocks mentioned, but thinks Halliburton's insights on the oil market are invaluable to investors. The Motley Fool recommends Halliburton. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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