That 2% per annum oil demand growth is smooth and steady and deceptively calm, but the effect on demand for goods and services to drill and complete new wells is anything but calm.
Take 2017 versus 2016 as an example:
To drill a well you need to rent a drilling rig and its crew. The drilling rig costs $10-20M if you buy it new, but you can rent it for $20-30,000 per day (you only need it for a couple weeks or perhaps a month). Last year (2016) when oil prices fell to about $26, demand for land drilling rigs to drill new wells collapsed. As a result, the market fell almost 40% from 2015. This year with oil around $50, the market for land drilling rigs will be up 20%.
Keep in mind that demand for oil climbed last year by 2% and again this year by 2%.
After you drill your well you have to frac the well, otherwise nothing comes out. A spread of frac trucks and all the support gear costs about $50M new, but you can rent it for about $2-3M per well. Last year (again, 2016), demand for frac crews collapsed and the market fell about 45% from the prior year. This year the frac market is growing by about 55% over 2016.
Again, oil demand climbed 2% year after year after year.
Demand for oil has generally been a terrible predictor of demand for oilfield equipment and services. If oil demand were a good predictor, oilfield markets for bits and pumps and cement and rigs would grow by single digit percentages year after year after year. But the reality is, demand for oilfield equipment and services is highly cyclic. Some years will be up 50% (2017) and some will be down 50% (2016). Our Oilfield Market Report, which tracks and forecasts the global oilfield equipment and service industry, shows that up cycles tend to last 3-4 years, while down cycles tend to last 1-2 year.
This is an industry not for the faint of heart, but next year is looking up again.