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 19, 2015 at 10:02am
Permalink Reply by Jim Litwinowicz on November 15, 2015 at 1:56pm

Its just about impossible to predict prices for the coming year as there are too many contradictory factors in play.

Hundreds of companies will keep drilling. 

There are already thousands of wells drilled but not fracked...any decent price bump will immediately boost fracking....which will drive prices back down. 

But many companies are teetering on bankruptcy which would boost prices as their drilling ceases.

But better technique, new discoveries, and lower costs will make wells cheaper and drive down prices. 

But the ME/N Africa could collapse, exploding prices. 

But the world econ is slipping and all this turmoil/terrorism may collapse it into a major recession/depression.

Massive immigration into Europe could destabilize Europe and destroy the EU.

There are many more issues to consider.

Permalink Reply by Jon on November 15, 2015 at 1:58pm

I've heard that there are tons of unfracked wells, but if the companies are gone how are they going to get fracked?

Permalink Reply by Joseph-Ohio on November 15, 2015 at 2:24pm
I'm thinking all the companies won't be gone myself.

I'm thinking even more wells will be developed.

I'm thinking the survivors will frac' those that are already drilled and then drill and frac' many more.

JMHO
Permalink Reply by jerry lee nichols on November 20, 2015 at 6:05am

If the US drops by 1mil production and the UAE and Iran along with the Saudis up 20mil barrels, then how does the price rise short term? Remember the Iran embargo bit a couple months ago when Royal Dutch Shell told the EU they wanted to access Iran oil for the EU, at that point they told the US that would be no embargo anymore. That was the point at which everybody blamed Obama and more Iran oil will be on the market.

Permalink Reply by Jon on November 20, 2015 at 8:34am
Saudi Arabia's production has been falling
Permalink Reply by Joseph-Ohio on November 20, 2015 at 8:45am

How much (as I've been trying to ignore that corner of the world as of late) ? ?

Permalink Reply by Jon on November 20, 2015 at 11:15am

I don't remember exactly. I think that they're still overproducing by opec standards, but I believe that their production is declining little by little. If you want to follow news on it, go to yahoo finance and watch the news for uso or oil.

Permalink Reply by Jon on November 20, 2015 at 11:53am
Permalink Reply by Joseph-Ohio on November 20, 2015 at 1:39pm

Thanks for the read Jon.

Personally, I think there's more to it than meets the casual observer's eye, myself.

Something's up with all this.

I think the developers that were (and still may be) 'hedged', were (and still may be) producing like crazy; as they sold' (and still may be) selling to buyers that were (and still may be) stockpiling / buying low.

Been reading some folks talking about some E&PS going bust; and I'm thinking the E&Ps being talked about are the ones running out of hedge.

Big business playing games - folks losing jobs - but the only ones who care are the ones losing the jobs and the lessors, and potential lessors getting rolled.

Also as it seems to go on the time can be used to develop better angles on the next round / Cycle of development.

Thinking that could describe what I would call  'Marcellus - Utica Development Cycle 1' (and 'Interim Development Downtime') near as I can fathom / theorize / try to describe / explain what's going on between my ears.

That's what I think.

JMHOs and thoughts here.

Permalink Reply by Joseph-Ohio on November 20, 2015 at 11:44pm

Also wondering if any of the ones being discussed as on the verge of going bust are affiliated with the buyers of their production ? ?

Lots of ways to cut the balony.

I should remind any readers that over the years I've spent reading and posting discussions and replying I've grown even more cynical then when I first began.

Just thinking out loud here.

Permalink Reply by Joseph-Ohio on November 21, 2015 at 12:32pm

What's your take on the article Jon ? ?

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