Occupancies slump as oil prices drop across the globe
 
Occupancies slump as oil prices drop across the globe
21 NOVEMBER 2016 9:55 AM

An analysis of oil prices and occupancies in five oil-driven markets around the world shows a clear correlation between the two.

HENDERSONVILLE, Tennessee—Global oil prices continue to gyrate but have stayed well below $100 per barrel for quite some time now.

This article charts the hotel performance of some oil-dependent markets against crude oil benchmarks and examines how the two might be related.

We cannot for certain establish causality, although it is probably not too much of a leap to assume that as oil prices decline, travel to oil-dependent markets declines as well. As pumps get shut down or exploratory drilling activities slow, the need for engineers and consultants diminishes. Most of the markets surveyed also do not have a well-diversified economy, so as oil prices slump, the majority of hotel demand slumps with it.

  • In July, STR research looked at the profitability of hotels in U.S. oil and gas submarkets, and found similar connections. Click here to read more.

Global markets
We examined the price of a barrel of Brent Crude as the indicator for global oil prices. We then charted the price against the rolling, 12-month, moving occupancy percent change for selected markets, namely Abu Dhabi and Dubai of the United Arab Emirates and Lagos, Nigeria.

The results look as follows (gray shading indicates barrel price below $100):

(Source: STR)
(Source: STR)
(Source: STR)

The story is the same in all the global markets examined. A prolonged decline in oil prices has negatively impacted occupancies for an extended period.

North American markets
In North America, we examined Calgary, Alberta, Canada; and Houston, Texas.

For Calgary, we examined the Brent Crude price, whereas we used the West Texas Intermediate barrel price as a benchmark for Houston.

(Source: STR)
(Source: STR)

Overall, the result in and outside North America are not different.

The occupancy decline was most pronounced in Lagos, but the market seems to have stopped the decline in the most recent past.

Other markets continue to observe declines of more than 10% on an annualized basis with no sign of change. It is probably fair to state that as long as oil prices continue to be well below $100 per barrel, there seems to be no catalyst for performance improvements.

This article represents an interpretation of data collected by STR, parent company of HNN. Please feel free to comment or contact an editor with any questions or concerns.

2 Comments

  • Jodie December 24, 2016 1:34 PM Reply

    Well put, sir, well put. I'll certlinay make note of that.

  • Jodie December 24, 2016 1:34 PM Reply

    Well put, sir, well put. I'll certlinay make note of that.

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