The North Sea oil industry is sure to face more pain before it can enjoy any gain, with the price of oil dropping below $30 a barrel again.
A glimmer of hope for the beleaguered UK sector surfaced when the barrel price rallied to around $30 at the start of this week.
The jump was prompted by the lifting of economic sanctions against Iran, but that has only opened a new deluge of black gold into the already oversupplied market.
Iran’s return to the global oil trade, with its capacity to produce 500,000 barrels a day, threatens the dominance of Saudi Arabia, the world’s biggest producer. But, it seems, not in a way to push prices back up again or at least not for the foreseeable future.
There were signs that Saudi Arabia’s controversial ‘pump and dump’ strategy had run its course. By pumping oil in such huge quantities it was emptying its oil wells quicker.
They are large wells, but the argument went that if Saudi Arabia wanted to hold on to its major income source for the long term, it would have to scale back its production.
Another problem was that, by collapsing the price through its own strategy, its oil revenues were lower and its production was less profitable.
Iran, the world’s fourth-largest producer, is unlikely to cut back its production to please its neighbour, and vice-versa. The Saudis’ grip on the global market is certain to be weaker, but not in a way to help the global industry recover.
Other factors in the over-supply/under-demand quandary are the slowdown of the economy of China, the world’s biggest energy consumer.
Demand has also gone down from the USA, the second-biggest consumer.
They are replacing Middle Eastern oil with their own fracked fuel, a move that sparked off’ ‘pump and dump’.
The massive oversupply of oil has produced the worst slump in the global industry since the Second World War.
It has lasted 18 months, and noone is predicting an end soon. Some forecasts suggest prices could still be around $25 a barrel this time next year.
HSBC chief executive Stuart Gulliver expects the price of oil by January next year to have settled between a high of $40 and a low of $25 a barrel considerably below the previous predicted averages.
The North Sea industry knows all about the impact of low prices, with BP last week confirming the loss of 600 jobs in the sector and 4,000 globally.
It was recently announced that another 400 could go at companies like Petrofac and Wood Group whose profits have been hammered by the 70% collapse in prices leading to a big cutback in investment.
At least 65,000 jobs are estimated to have been lost in the North Sea in little more than a year.
Optimistically, BP is not giving up on the UK industry. It said it remained committed to the North Sea where it would invest about $4 billion (£2.7bn) in operations this year.
Oil production in the UK Continental Shelf did rise last year, but that was a consequence of investments made up to a decade ago, when prices were projected to be much higher.
Companies are expected to drill just six wells in the area this year, the lowest number since 1964 because it would be ludicrously uneconomic to develop any more. The repercussions of such little activity on the UK industry are obvious.