Lions, Bears and Ducks, Oh My!1

Well there are no lions, but Bear Markets and Drilled Uncompleted wells (“DUC wells” pronounced “Ducks”) in the Permian are moving oil prices this month.

Bear Markets for Oil Prices: WTI and Brent

Oil prices are in Bear Market territory this month, having had a 2 standard deviation downward move from last month, as this week’s crude futures pricing eliminated 2018’s gains.

The slump reflects current concerns over excess supply for 2019, when previously a shortage had been expected.

UCs in the Permian

The graphic below from the U.S. Energy Information Administration (EIA) shows all of the regions tracked by the EIA, but as of October 2018, the Permian has over half of the Drilled Uncompleted Wells.

In fact, between September and October 2018, 684 wells were drilled and over one-third of those wells were left uncompleted (249 wells).2

According to the EIA, when producers are under economic duress, the number of DUCs can provide useful insight into upstream industry conditions. A high inventory of DUCs also has potential implications for the size and timing of the domestic supply response to a persistent or significant rise in oil prices with or without significant changes in the number of active drilling rigs. Given requirements for planning and scheduling completion jobs, there will always be some DUCs.3

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 illustrates the crude oil pricing as of November 15, 2018 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 (the middle, green line), and the outside, red lines are within two standard deviations for each month (for a refresher on standard deviations, see the January 2016 blog).

Based on November 15, 2018, pricing, the futures markets indicate that in mid-December 2018 the expected strip price is $56.74, with a 68% chance that oil prices will be between $50 and $62 per barrel. Likewise, there is about a 95% chance that prices will be between $41 and $71. For a longer-term view, by mid-February 2019 the approximate one standard deviation price range is between $68 to $47 per barrel with an expected value of $57.15.

Natural Gas Outlook

The natural gas futures contracts are currently trading at $3.92 per MMBtu for the Henry Hub (ticker /NG). Although more affected by seasonal factors than crude oil, in December 2018, the expected price is $3.92 with a +/- 1σ price range of $3.15 to $5.00 per MMBtu, and the 2σ range (95%) of $2.55 to $5.00 per MMBtu. For a longer-term view, by mid-February 2019 the expected price is $3.79 per MMBtu with a +/- 1σ price range of $2.65 to $5.00 per MMBtu.

1. Adapted from The Wizard of Oz movie’s famous quote, “Lions and Tigers and Bears, Oh My!” This line was spoken by Dorothy, the Tin Man, and the Scarecrow, played by Judy Garland, Jack Haley, and Ray Bolger (respectively) in the film directed by Victor Fleming (1939).

2. EIA website:, accessed 11/14/2018

3. EIA website:, accessed 11/14/2018

Tags: Oil & Gas Price Outlook November 2018, Gas Price Outlook November 2018, Oil Price Outlook November 2018

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