Oil & Gas Price Outlook March 2017

Oil Prices Hopefully Beginning Recovery from an $8.00 per Barrel Decline

Until last week, crude oil prices had been trading within a $2.00 to $3.00 daily range and trending upward.  However, investors were alarmed in early March when data from the American Petroleum Institute (API) showed a big jump in U.S. inventories that reached a record 529.6 million barrels, causing crude oil futures prices to fall nearly $8.00 per barrel from their recent highs.1

Oil & Gas Price Outlook March 2017Oil prices climbed from three-month lows yesterday after the EIA announced a surprise drawdown in U.S. inventories and suggested OPEC cuts should push the crude market into deficit in time.  “For those looking for a rebalancing of the oil market the message is that they should be patient, and hold their nerve,” the IEA said in its monthly report.

Natural gas prices continued to show steady advancement, unaffected by the EIA’s announcements regarding oil inventories.

Crude Oil Outlook

While futures markets aren’t a crystal ball, their price levels and related options are useful for estimating future ranges or “confidence intervals” for crude oil and natural gas prices.

The graphic below shows the crude oil price on March 15, 2017, and predicted crude oil prices based on options on oil futures contracts (ticker /CL).  The blue lines are within one standard deviation (σ) of the settlement price (green line) and the red lines are within two standard deviations for each month (for a refresher on standard deviations, see the January 2016 blog).

Oil & Gas Price Outlook March 2017Based on the March 15, 2017, prices, the markets indicate that in mid-June 2017, there is about a 68% chance that oil prices will be between $42.00 and $57.50 per barrel. Likewise, there is about a 95% chance that prices will be between $34.50 and $66.50.  For a longer-term view, by mid-December 2017, the +/- 1σ price range is $37.50 to $62.50 per barrel, with an expected value of $50.63.

Natural Gas Outlook

We can do the same thing for natural gas futures, currently trading at $2.98 per MMBTU on the Henry Hub (ticker /NG).  Although more affected by seasonal factors than crude oil, in June 2017, the +/- 1σ price range is $2.65 to $3.85 per MMBTU and the 2σ range (95%) is $2.15 to $4.75 per MMBTU.  The expected value of natural gas prices in mid-June 2017 is $3.17 per MMBTU.

1. March 15, 2017, CNBC, “U.S. Oil Jumps After Data Shows Surprise U.S. Stock Draw”


Tags: Oil & Gas Price Outlook March 2017, Gas Price Outlook Mar 2017, Oil Price Outlook Mar 2017

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