Oil Price Slump Dooms U.K. Producers to Lowest Profits in 20 Years

oiltankerFrom Lincoln Brown: Oil’s massive price drop almost completely erased the profits of United Kingdom-based oil companies in the first quarter of 2016, in the latest sign that cheap crude may eventually have negative ramifications for the global economy.

Numbers from the Office of National Statistics (ONS) show that the oil and gas sector in the United Kingdom experienced its least profitable quarter in two decades at the start of the year.

The Office said that the continental shelf companies in the UK saw profits fall to 0.2 percent in the first quarter of 2016. The 0.2 percent mark is significant—it is the lowest profit figure for the sector since the ONS started tracking the data in 1997, and shows a serious dip from 2011 numbers which showed sector profitability at more than 50 percent.

As with much of the other industry woes, the dip in oil prices is one of the primary culprits for the profit slump. The ONS recorded a drop of 32 percent between the first quarters of 2015 and 2016.

The issue is not a new one. In April, fast FT noted that the slump was noticeable in the waning months of 2015; fast FT also stated that in 2015, the shelf companies saw a drop to 3.5 percent in 2015, and a decrease on 14.3 percent in 2014.

Earlier this year, The Telegraph reported that in 2007, oil from the North Sea had returns of up to 65 percent, as prices for Brent crude climbed. The subsequent drop in prices has exerted pressure on the industry in the North Sea. As to the situation at the time, the ONS stated: “This is the lowest quarterly figure since the series began in 1997 and reflects falling oil and gas prices, which failed to be offset by increased quarter-on-quarter sales.”

However, companies outside of the North Sea oil and gas sector have seen economic gains. In 2015, those companies saw an annual net rate of return of 13.2 percent. The ONS stated: “This is 0.5 percentage points higher than in 2014 and the highest annual rate since 1998.”

The United States Oil Fund LP ETF (NYSE:USO) fell $0.11 (-1.12%) to $9.73 in Friday morning trading. USO, which is the largest ETF that tracks the price of WTI crude oil, has lost 11.8% year-to-date.

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This article is brought to you courtesy of OilPrice.com.

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