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Crude Oil Prices in 2014

By Matthew DiLallo - Jan 4, 2014 at 8:19AM

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A look at how crude oil prices in 2014 will affect major oil producers. Our analyst looks at ExxonMobil, Chevron, BP, and ConocoPhillips.

Stormy seas or smooth sailing for crude oil prices in 2014? Photo credit: BP p.l.c.

Crude oil prices have been relatively stable the past few years. In America, the price of West Texas Intermediate crude oil has averaged about $95 per barrel. That's expected to continue in 2014. Overseas, the global benchmark Brent crude oil has traded much higher with an average of more than $110 per barrel the past three years. Let's take a closer look at what we can expect from global crude oil prices in 2014. 

According to the U.S. Energy Information Agency, global oil producers will see crude oil prices moderating in 2014. Its current short-term energy outlook projects that Brent crude oil prices will average about $104 per barrel in 2014. That's down from the 2013 average of $108.41 and the more than $111 in the prior two years.

Most analysts agree that Brent crude oil prices will fall in 2014. The average analyst estimate is around $105 per barrel. Analysts see lower demand and higher supplies weighing down the price of Brent crude oil in 2014. That said, the International Energy Agency did just recently raise its 2014 oil demand forecast as it sees U.S. consumption rebounding in 2014. Bottom line, increasing supply should keep oil prices from spiking in 2014 while demand should be high enough to keep Brent-based crude oil prices well over $100 per barrel in 2014.

How this affects crude oil producers
That is welcomed news for global oil giants like ExxonMobil Corporation (XOM 0.87%) and BP pcl (BP 0.80%) as $100 oil is very profitable. That price has encouraged ExxonMobil and BP to invest tens of billions of dollars to open up new sources of oil and gas around the world. That said, what we aren't yet seeing is an increased rate of capital spending from these oil giants.

BP recently reiterated that it expects its 2014 capital spending to be around the same $25 billion level as it was in 2013. Meanwhile, Chevron Corporation (CVX 0.14%) actually cut $2 billion from its 2014 capital spending plan. That's about 5% less than the $42 billion that America's second-largest oil company spent in 2013.

Slipping oil prices in 2014 are also affecting where oil giants spend capital. For example, Chevron isn't spending very much money in America this year. Overall it's spending about 20% of its capital to drill in the U.S. Its massive size has made it harder for the company to profit from America's shale boom where smaller, nimbler rivals are really winning. That's one reason we are seeing a slimmed down ConocoPhillips (COP 2.38%), on the other hand, spend more than half of its capital budget in North America in 2014. ConocoPhillips can use its oil-focused drilling in the U.S. to fuel production and margin growth of 3%-5% annually through 2017.

The other major trend we are seeing is that companies like Chevron are really working on winding down peak spending. For Chevron, 2014 will be the peak spending year for its Australian LNG projects. The same can be said for ExxonMobil, which wrapped up construction on Phase I of its massive Kearl oil sands project this past year. While ExxonMobil has several other projects in the works, it's likely to join Chevron and BP by not increasing its capital spending in the future. Further, if oil prices continue to track lower in the future, we could see spending from oil companies really begin to drop off heading into 2015.

Investor takeaway
We are beginning to see global oil giants head into harvest mode as many major projects are beginning to come online. Instead of reinvesting the flood of new profits, sagging oil prices aren't enticing these giants to continue spending. Bottom line, if crude oil prices do fall in 2014 it could mean that investors get larger dividend boosts as companies forsake investing in unappealing production growth projects that don't meet return criteria. That, however, could actually set the industry up for higher prices a few years down the road.

That's why OPEC isn't worried, yet.

Fool contributor Matt DiLallo owns shares of ConocoPhillips. The Motley Fool recommends Chevron. 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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Stocks Mentioned

Exxon Mobil Corporation Stock Quote
Exxon Mobil Corporation
$94.00 (0.87%) $0.81
Chevron Corporation Stock Quote
Chevron Corporation
$159.85 (0.14%) $0.23
BP p.l.c. Stock Quote
BP p.l.c.
$31.67 (0.80%) $0.25
ConocoPhillips Stock Quote
$102.75 (2.38%) $2.39

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