2016 Price / Supply Forecasts

Have been "reading up" on supply/demand/price performance for the coming year.  And and wondering how it will affect the value/prices of leasing and/or selling rights in the WV, Ohio, Pennsylvania Marcellus - Utica play.

One of the most believable articles I've discovered to date is at this link from etf.com:

http://www.etf.com/sections/features-and-news/2016-oil-whats-store

Where do you see oil prices going in 2016? 
Phil Flynn: We’ll see prices rebound because you’re going to see a massive cut in capital spending that’s already started to take its toll on supplies. One of the worst things that happened is that little double dip that we had in oil prices. Prices recovered in July and they brought back all these oil rigs and everybody thought the worst was over, but then prices crashed again because of China and Europe and Iran. Now everybody’s going to be afraid to bring production back on, which means they’re probably not going to act quickly enough when prices come back up.

Low prices will stimulate demand at a time when production is cut back. I think we’ll average $57 next year, but see a spike as high as $80.

Michael Cohen: We don’t think the current price levels are sustainable for medium-term growth of supply in order to meet the demand that’s been spurred on by these lower prices. Therefore, we expect we’ll see an adjustment back up into the $60 range in the second half of next year, and that that price level is going to be required to have enough supply to meet demand.

Fadel Gheit: We expect oil price volatility to continue in a narrow range below $50.

What’s your outlook for supply? Is the recent drop in U.S. production something that’ll continue? 
Flynn: It will drop by 1 million barrels per day. I think most people are behind the curve on those estimates. We’re already seeing evidence of the decline in Cushing, Oklahoma, where supplies are falling faster than anticipated.

Cohen: Over the next two to three months, we’re likely to see supply continue to decline. However, once the market realizes it needs U.S. shale output to continue to grow at a decent pace of 100,000 or 200,000 barrels a day per year, there will be a price impact later on in 2016.

Once that happens, you could get U.S. crude output back up to 9.6 million or 9.7 million barrels a day. We don’t really see a scenario in which U.S. production declines steeply, because there will be a market impact from that. Most of the U.S. producers that are sitting on a backlog of wells that they want to complete and bring on will do so at higher prices. By doing that, they’ll support overall output and mitigate the decline from existing fields, and there won’t be a steep trajectory down.

Gheit: We expect flat to small declines in supply as capital-expenditure cuts will be largely offset by efficiency gains and better allocation of capital. Production from new major project startups will offset shale production declines.



What are your insights?

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Replies to This Discussion

Permalink Reply by Jon on November 21, 2015 at 9:33pm

Well, having seen various people's pay stubs on here. Some of the companies are hedged and some aren't. So, yeah the one's that aren't hedged are definitely hurt, but how much longer are the hedges going to last for? There seems to be a lot of information pointing both ways. To me it seems like production should go down because of sending cuts and bankrupt companies. We'll see what happens to opec's budget in another year. I think that it will still take a while for prices to go up, because of new wells coming online. Then again something geopolitical could happen and change everything.

Permalink Reply by Joseph-Ohio on November 22, 2015 at 8:40am

To me, it looks like the East / Communist Oppression + Socialist Oppression + Despot Oppression is squaring off with Western / Democratic (????) Republic Capitalism - and it's all milling around Natural Resources.

Seems to me that there's no shortage of oppression to be found in Western Capitalism either.  Judging from what I read on these pages (being a powerless minority in all of this) Land Owner / Mineral Owner / Lessor abuses / Tresspasses, by O & G power brokers (including their lobbies) working in apparent concert with their seemingly bought and paid for legislators / legislation (in place / being deliberated) to me appear to be in abundance.

Anyway all of the above could portend a long test.

Still, I know whose side I'm on - the West.  I and my loved ones live here and have a life long vested interest.

Permalink Reply by David Allen Lilly on November 21, 2015 at 10:49am

I will ask only this question:

When is the last time oil prices went down and stayed down, never rebounding ?

Permalink Reply by Joseph-Ohio on November 21, 2015 at 1:58pm
Can't remember such a time D. A. L.

About much of anything (not just oil).
Permalink Reply by David Allen Lilly on November 22, 2015 at 10:42am

Nobody can have much more than an educated guess as to what prices will do in the future.

Remember when we were told all about the "end of oil" breathlessly and endlessly just a few years back, maybe 2006 or so ?

The History Channel even ran programs about the decline of oil and the democrats and environmentalists peddled their alternative energy nonsense  as the only answer to the false scenario of oil's demise.

Before that I remember Clinton as president when I first saw gasoline prices going up, seems like it was the $3 a gallon mark, whatever, it was a price level unseen before.

Back then we were told that drilling was idiotic because it took ten years to drill and complete a well and we needed more refineries and the infrastructure would take another half decade or more and it would all come to late as the world would have moved on already.

Oil will come back up, it always has and this time will be no different. The world needs it to run and there is not a hint of a viable alternative anywhere near what is required, maybe even for another 50 years, or more.

I believe that oil is likely to begin rising in 2017, unless ISIS continues to set the world on fire and the West acts on the oil money that largely funds their acts of barbarism. If the struggle should spread to a larger conflict that pits much of the Middle East against some Western led coalition the result would be much higher prices very quickly.

I also believe that it is becoming apparent that OPEC has over-played it's hand betting on over producing at the cost of market share, having given up much more important leverage that they owned as the worlds swing producer. In the end the shale oil will win enough that the oil companies will likely strike some uneasy truce that provides for cooperation among them that allows a re-manipulation of the markets to staunch the bleeding created by low oil prices.

Somewhere in the future the light will come on that the dynamics have drastically changed and that all everyone is doing is hurting everyone, even themselves, and that it is all for naught.

I am beginning to see that the domestic oil companies are not going to be run out of business before the petro-states will have inflicted un-bearable harm onto themselves.

And hopefully this country will get its economic act together and quit fooling around with Marxist community agitator presidents long enough to elect someone who can actually do the job of righting our economy.

There are countless and endless scenarios that would raise prices and all have validity. There are no instances where oil prices went down and stayed down and there is nothing to replace oil which would leave its devaluing permanent.

Permalink Reply by gary SWF on November 22, 2015 at 6:01pm

I agree with what you have said David........Hope we are both correct.........All IMHO.

Permalink Reply by Bluflame on November 23, 2015 at 9:39am

Good Morning,

  A little historical perspective. The last time oil prices fell off the cliff was the mid-late 1980's. Prices at that time declined to the low-mid teens, of course from a much lower starting point. In Texas, this event coincided with the S&L crisis. The two factors resulted in massive housing foreclosures in the Lone Star State. The problem thereafter spread nationally. More pertinently, it took about 20 years for oil prices to fully recover, and then only, as D.A.L. notes, when "end of oil" fears were prevalent.

  It seems like a totally different scenario now, with reports of oil-saturated supertankers backing up across the world seeking an end market.  We will be (if we are not already) the de-facto swing producer for the world because shale production here is 100% market driven. Virtually all international oil production is politically-driven because the resource is government-owned. In international geography, oil is a significant financial factor keeping governmental wheels greased (forgive the pathetic pun). They are incentivized to keep producing regardless of unfavorable economics.

   Therefore I do not see a rapid turnaround of current bargain basement prices anytime soon, short a major Mideast disaster. As U.S. producer hedging positions expire, we will see a rising toll of E&P bankruptcies. When that happens, other E&P's will step in with investors (mainly investment banks) taking significant haircuts on previous investments. This will be necessary to clean up balance sheets bloated with unsustainable debt.

  This fearless prognostication is all IMHO.

BluFlame

Permalink Reply by Joseph-Ohio on November 23, 2015 at 1:00pm

BluFlame,

What you've written and if it's accurate (and I think it is) leads me to theorize along the following lines :

1) The ME is already a disaster but seems to me that they still control the price of the world's oil by virtue of OPEC, SA (et al in their geography) flooding the market with their production which costs them little to harvest.

2) Personally I can't think of anything that's going to change that as I can't imagine a big enough war anywhere in the world to impact that tact.

3) For our (USA) O&G E&P Companies to really get busy developing and hiring again, it seems to me would be more likely to involve their willfully going after more market share and becoming sharper / more efficient / competitive in the world of E & P.

So, I'm thinking it's more on our guys to right their ships this go around.

Only other things that I can think of to help our E&PS out would be to embargo / boycot / tariff the dickens out of ME production and negotiate trade deals with our allies.

How likely is that to happen remains a big question in my mind.

Maybe our guys are competitive already and just not letting that particular cat out of the bag ?

Permalink Reply by Bluflame on November 23, 2015 at 1:22pm

J-O,

Selective responses:

3) Catch-22 here. Only method of capturing additional share is reduced pricing, which would only drive OPEC pricing lower to maintain share. The E&P's have already become sharper and more efficient. IMHO….they've already harvested the low hanging fruit; further efficiencies will become increasingly challenging (and expensive).

Embargos/boycotts/tariffs are self-defeating because they invite reciprocal treatment, often in unexpected ways. The Law of Unintended Consequences applies here. IMHO…..not a good idea.

J.O., I wish I could be more optimistic. Negativity is not part of my DNA.

BluFlame

Permalink Reply by Joseph-Ohio on November 23, 2015 at 2:10pm
Likewise this end BluFlame.

So I guess our industry can do nothing to help itself and all that can be done is wait for the East to change the rules of play.

Maybe if SA begins to feel threatened by Russia and Iran they'll scale back on their over-production in a meaningful manner ? ?

Is that realistic or rampant optimism ? ?
Permalink Reply by Bluflame on November 23, 2015 at 2:22pm

I did read today there is some pressure emerging within OPEC to reduce output. However, enforcing discipline within OPEC is like herding cats, especially since SA left the Genii out of the bottle.

BluFlame

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