International Energy Agency’s Report is Bullish on U.S. Oil Production
According to the U.S. Energy Information Administration (“EIA”), U.S. crude oil production has grown to 10.4 million BPD (“Barrels per Day”) as of March 2018. 1 This production level surpassed the previous peak of 9.6 million BPD dating back to 1970. 2
The International Energy Agency (“IEA”) recently predicted that U.S. production will grow to 12.1 million BPD by 2023, making the U.S. the world’s largest oil producer. 3 Other major producing regions are also expected to continue their production growth, with the countries within the Middle East remaining the largest exporter of crude.
Note: “LTO” in the chart above refers to Light Tight Oil from shale plays.
IEA Executive Director Faith Birol also is forecasting for annual oil consumption to grow by 1.2 million BPD over their forecast period, driven by increasing demand from China and India despite pollution reduction policies.
These stable growth expectations have laid the foundation for additional upstream investment. Aging fields are facing annual production declines of approximately 3.0 million BPD and will need to be replaced with new producing wells. Without a strong increase in drilling expenditures, crude prices could become more volatile and undermine their recent stability.
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 crude oil price as of March 15, 2018 and predicted crude oil prices based on options on oil futures contracts (ticker /CL).
On the graphic below, 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).
Based on March 15, 2018, pricing, the futures markets indicate that in mid-May 2018 the expected strip price is $61.08, with a 68% chance that oil prices will be between $55.00 and $67.00 per barrel. Likewise, there is about a 95% chance that prices will be between $48.00 and $76.00. For a longer-term view, by mid-November 2018 the approximate one standard deviation price range is between $48.00 to $63.00 per barrel with an expected value of $59.00.
Natural Gas Outlook
The natural gas futures contracts are currently trading at $2.74 per MMBtu for the Henry Hub (ticker /NG). Although more affected by seasonal factors than crude oil, in June 2018, the expected price is $2.82 with a +/- 1σ price range of $2.45 to $3.25 per MMBtu, and the 2σ range (95%) of $2.15 to $3.85 per MMBtu. For a longer-term view, by mid-Oct 2018 the expected price is $2.85 per MMBtu with a +/- one standard deviation price range is between $2.25 to $3.50 per MMBtu.
3. IEA Sees No End to US Shale Output Surge. Journal of Petroleum Technology. M. Zborowski. March 6, 2018.
Tags: Oil & Gas Price Outlook March 2018, Gas Price Outlook March 2018, Oil Price Outlook March 2018
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