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Price is one of the key factors that drive                East North Africa) region resulted in an oversupply,
                                           market dynamics in all the Industries    forcing oil producing countries to fight for market
                                           sectors, without exceptions. For the     shares. In this context, the Opec, the leading super
                                           oil & gas industry, low oil price isn’t  power partially outshined by shale oil producers,
                                           something new, but there are clear       decided to defend its market share by keeping
                                           evidences that a disruptive phase has    its production stable at 30 million barrels per day
                            just begun.                                             (a decision recently confirmed at the beginning of
                            In the last ten years oil price has been above 100 $/   June). It is not a “play for time” move, but actually
                            barrel without the industry feeling dizzy, rather giv-  an aggressive decision, keeping prices well below
                            ing confidence to the IOC’s (International Oil Com-     the operating break-even level of the new challen-
                            pany) to rush for the “frontier”, technological and     gers, i.e. most unconventional sources such Ca-
                            geographical, with long term investments. It hap-       nadian sands, shale oils and deep water. However,
                            pened twice, but in both cases believers of a high-     countries with low production costs are not in the
                            oil-price steady future were cooled down (figure        same shape and most likely not going to win all
                            1). The two falls (two “black swans” for metaphor       together. Indeed, current prices are also lower than
                            lovers) in 2008/2009 and 2014/2015 have though          fiscal national budgets for most of them, while only
                            different grounds and roots. In 2008 the financial      few have cash reserves to sustain the game for
                            fever, later classified as crisis, infected the “brick  long and defend the market share.
                            and mortar” economy, spreading across all the
                            industries, ultimately resulting in a sudden reduc-     Challenges of a new era
                            tion of oil price. Since then and until the second
                            half of 2014, the oil price recovered, being steadily   What’s next? Market consensus is aligned on a
                            above 100 $/barrel and, even if the world economy       scenario with oil price in a band between 65 and
                            still coughs, the recent drop in oil price cannot be    85 $/barrel for future years and different paths for
                            explained as an indirect consequence of financial       recovery. Ironically, in the last ten years the oil price
                            games. Indeed, the drop finds its roots in the oil      was mostly out of this band; however, it is more re-
                            “fundamentals”, being the dynamics of supply and        levant to notice that the oil & gas industry has star-
                            demand, coupled with geopolitics.                       ted reshaping itself to “fit for 60”, likely the dawn of
                                                                                    a new era.
                             Low oil price as the dawn of a new era:
                             market consensus is currently aligned                  Low oil prices have unveiled unsustainable
                            on price between 65 and 85 $/barrel for                   operating costs as consequence of the
                                                                                              “time-to-market” rush
                                           future years

                          Since September 2012, oil production in North             Oil companies are more vulnerable. Low oil pri-
                          America has progressively increased by around 4           ces imply both lower profits and less risk appetite,
                          million barrels per day. In 2013 the increase was         therefore, both lower yields and growth, resulting
                          absorbed by production stops in Libya, Iran and           in lower values: since August 2014, investors fled
                          Iraq, and still not sufficient to satisfy the world oil   from the oil & gas industry with more than 500 bil-
                          demand. In 2014, instead, North American increa-          lion dollars in market value. Current conditions will
                          se and production recoveries in the MENA (Middle          clearly facilitate significant consolidation among
                                                                                    players, just inaugurated by two relevant merges

Fig. 1 - Brent crude oil
price evolution (source:
dataStream; Bloomberg)

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