After a two-year flop, oil prices have soared over $50 this month. However, Raymond James & Associates claims this is only the beginning.
Analysts under J. Marshall Adkins wrote that West Texas Intermediate will average $80 a barrel by the end of 2017. That is greater than all but one of the 31 analysts Bloomberg surveyed.
The team said, “Over the past few months, we’ve gained even more confidence that tightening global oil supply/demand dynamics will support a much higher level of oil prices in 2017,” they also wrote, “We continue to believe that 2017 WTI oil prices will average about $30/barrel higher than current futures strip prices would indicate.”
Three reasons for the team’s estimate were offered in the note and they were all linked to global supply. This remains a major reason in causing crude’s huge drop.
First, the analysts envision foreign production being limited by more than they had originally expected. Roughly 400,000 fewer barrels each day will be produced in 2017 in relation to the team’s January estimate. They mention organic decreases in Angola, China, Columbia, and Mexico as provoking this plunging revision.
Raymond James wrote, “When oil drilling activity collapses, oil supply goes down too! Amazing, huh?”
Adkins and company added that the abnormally large volume of unplanned supply outages might continue through next year. This would take another 300,000 barrels per day away from the global supply.
Finally, U.S. shale producers will be unable to answer to higher prices by increasing output. The team cites a restricted pool of equipment and labor.
Both the supply reduction and stronger global demand tied to gasoline intake add up to the $80 barrel Adkins has predicted.
Adkins wrote, “These newer oil supply/demand estimates are meaningfully more bullish than at the beginning of the year,” he continued, “Our previous forecast was considerably more bullish than current street consensus, and our new forecast is even more so.”
The only analyst with a higher price prediction for next year is Ronald Stoeferle, an Incrementum AG Partner. He guesses that WTI will be at $82 a barrel in 2017. General consensus says that this crude will average to $54 a barrel next year.
Overall, the team at Raymond James sees WTI prices leveling to roughly $70 a barrel.
Article written by HEI contributor Briana Steptoe.
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This winter, natural gas prices have been at their lowest levels in decades. On Monday, February 10, the near-month natural gas futures price at the New York Mercantile Exchange (NYMEX) closed at $1.77 per million British thermal units (MMBtu). This price was the lowest February closing price for the near-month contract since at least 2001, in real terms, and the lowest near-month futures price in any month since March 8, 2016, according to Bloomberg, L.P. and FRED data.
In addition, according to Natural Gas Intelligence data, the daily spot price at the Henry Hub national benchmark was $1.81/MMBtu on February 10, 2020, the lowest price in real terms since March 9, 2016. Henry Hub spot prices have ranged between $1.81/MMBtu and $2.84/MMBtu this winter heating season (since November 1, 2019), generally because relatively warm winter weather has reduced demand for natural gas for heating. Natural gas production growth has outpaced demand growth, reducing the need to withdraw natural gas from underground storage.
Dry natural gas production in January 2020 averaged about 95.0 billion cubic feet per day (Bcf/d), according to IHS Markit data. IHS Markit also estimates that in January 2020 the United States saw the third-highest monthly U.S. natural gas production on record, down slightly from the previous two months.
IHS Markit estimates that U.S. natural gas consumption by residential, commercial, industrial, and electric power sectors averaged 96 Bcf/d for January, which was about 4.4 Bcf/d less than the average for January 2019, largely because of decreases in residential and commercial consumption as a result of warmer temperatures.
However, IHS Markit estimates that overall consumption of natural gas (including feed gas to liquefied natural gas (LNG) export facilities, pipeline fuel losses, and net exports by pipeline to Mexico) averaged about 117.5 Bcf/d in January 2020, an increase of about 0.2 Bcf/d from last year. This overall increase is largely a result of an almost doubling of LNG feed gas to about 8.5 Bcf/d.
Because supply growth has outpaced demand growth, less natural gas has been withdrawn from storage withdrawals this winter. Despite starting the 2019–20 heating season with the third-lowest level of natural gas inventory since 2009, by January 17, 2020, working natural gas inventories reached relatively high levels for mid-winter. The U.S. Energy Information Administration’s (EIA) data on natural gas inventories for the Lower 48 states as of February 7, 2020, reflect a 215 Bcf surplus to the five-year average. In EIA’s latest short-term forecast, more natural gas remains in storage levels than the previous five-year average through the remainder of the winter.
According to the National Oceanic and Atmospheric Administration (NOAA), January 2020 was the fifth-warmest in its 126-year climate record. Heating degree days (HDDs), a temperature-based metric for heating demand, have been relatively low this winter, which is consistent with a warmer winter. During some weeks in late December and early January, the United States saw 25% to 30% fewer HDDs than the 30-year average. This winter, through February 8, residential natural gas customers in the United States have seen 11% fewer HDDs than the 30-year average.
Source: U.S. Energy Information Administration, based on National Oceanic and Atmospheric Administration Climate Prediction Center data
Headline crude prices for the week beginning 10 February 2020 – Brent: US$53/b; WTI: US$49/b
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