I’ve noted on several occasions that one of Schlumberger Limited. (NYSE:SLB)‘s inherent strengths lies in management’s unusual ability to cogently spell out both the company’s progress and the macro trends that prevail in the global world of energy at any given time. Rarely, however, have I seen that valuable trait on display as was the case last week, when CEO Paal Kibsgaard addressed Howard Weil’s energy conference last week.
A three-way gander
Kibsgaard’s comments were divided among three themes: the global economy and its effects on the energy sector, Schlumberger Limited. (NYSE:SLB)’s own financial trends, and the more noteworthy growth markets the company is serving. The result was the imparting of information that can benefit Fools investigating most aspects of the energy sector.
The company’s still relatively new chief executive first noted that, for four years running, “the global economy has faced continued uncertainty.” No surprise there. Nor is it easy to quarrel with the notion that “[t]he Chinese economy is improving with growth having accelerated for several quarters in a row.” I suppose I’d feel somewhat better about that statement were Chinese economic metrics more transparent to those of us outside the country.
However, the economist in me tends to blanch at the assertion that the U.S. has posted “relatively encouraging employment data.” Sure, our technical unemployment rate is ever-so-slowly trending lower. But add back those individuals who have thrown in the towel and ceased seeking employment, and the quantitative picture becomes radically different.
A repeat of 2012?
Regarding the impact of these basic economic trends on the global demand for oil, Kibsgaard expects the 2013 supply-demand picture to approximate that of the prior year. The delta in demand is likely to be about 1%, or 900,000, with much of the offsetting production growth occurring in North America. “As a result,” he predicts, “the oil market is expected to remain tight, and this will continue to support oil prices in the band that we have now seen since 2011.”
Natural gas presents a different set of circumstances. For now, demand for LNG has pushed Asian prices close to parity with oil, a trend that Schlumberger believes is likely to continue. In Europe, reduced demand has been offset by that same increased Asian LNG demand, thereby actually boosting European spot prices of late.