Energy Markets In 2018: Forecasts, Forecasts, Forecasts

Value Digger

In January 2016, oil hit $26/bbl and that was a generational bottom. Actually, in January and February of 2016 we double bottomed at $26/bbl.

It was back then when some analysts were also calling for $10/bbl while other analysts were saying that oil might not ever trade above $40/bbl again.

Of course, those predictions were ridiculous although many investors swallowed them.

Then, in 2017, oil had to face fake news. Oil struggled a bit in 2017 early on fake news such as concerns for a supply glut, doubts about the success of OPEC production cuts, overestimations of U.S. shale oil production and false predictions of lackluster demand.

In March 2017, we published our own forecasts for our subscribers. Specifically, when it comes to natural gas, we noted in March 2017 that:

" Furthermore, we project that at the end of the withdrawal season this April, inventories will stand at approximately 2,000 BCF. Taking into consideration this starting point, we forecast that for the most part, natural gas price will be rangebound trading from $3/mmbtu to $3.5/mmbtu (Henry Hub) by year end. And given that demand/supply will remain tight in 2017, we could see natural gas prices temporarily climb above $3.5/mmbtu (Henry Hub) in H2 2017 if we experience a very warm summer."

And when it comes to the WTI price, we noted that:

"After all, we project that WTI price will be rangebound from $50 to $55 in H1 2017 and will exceed $55 in H2 2017 reaching $60 in Q4 2017."

If you check now the charts, you will see that our forecasts both for natural gas and WTI were correct.

On that front, we plan to publish our Energy Outlook for 2018 by year end, so stay tuned!

Until then, let's see what two promiment figures of the energy markets recently said about the shale oil and oil prices for 2018.

The first one is Pierre Andurand, a successful fund manager who has been specializing in the oil market and forecasted in September 2015 that crude would slump to between $25 and $30. Five months after his statement, prices dipped to around $26 in early 2016.

Earlier this year, he called for $60 oil at the end of the year and here we are.

Andurand predicts a price rally for 2018. For 2018, he stated that oil could go to $80 without the OPEC deal but “much higher” with the output accord in place.

Here are his statements from the recent Sohn London Conference. It's an interesting read.

And there is also Mark Papa. He was a pioneer of the shale revolution and one of its most adamant proponents while being the CEO of EOG Resources (EOG) from 1998 to 2013, when he produced an immense amount of shareholder wealth during his reign.

Papa said at the recent Bank of America Merrill Lynch Global Energy Conference in Miami:

- "Conventional wisdom is that no matter what OPEC does, the U.S. shale machine is going to counter OPEC's action and flood the market, and prices are going to stay low forever".

- "Further, conventional wisdom believes that if OPEC decides to extend the production cuts or not extend the production cuts, there'll be a countervailing action by the U.S. shale producers and the shale machine in the U.S., and that we're doomed forever to have oil prices in the approximate $50 range.”

- "The epitome of that conventional wisdom is a recent report from the International Energy Agency (IEA), which concluded that the resilience of U.S. unconventional natural gas and oil from shale and tight resources has cemented the country's position as the biggest producer in the world, even at lower prices. According to IEA's World Energy Outlook 2017, the United States will become a net oil exporter by the late 2020s."

- "The SCOOP, the STACK, the Niobrara, they get a lot of publicity by individual companies but they are really insubstantial on a national scale."

- "Forecasts of the industry's growth for 2018 and later are overly optimistic. Shale oil growth in the U.S. won't be as high as is currently being projected by IEA and EIA because of the reasons below":

- "Other attributes to the lack of potential growth are illustrated below:"

"and below:"

After all, Mark Papa expects oil growth in the U.S. to be between 600k and 700k bbls/d in 2018 versus consensus growth estimates of 1.2 million bbls/d, which will only be more and more evident as we head into 2018.

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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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Comments (1)
No. 1-1

There is too much info associated with oil and gas forecasts in 2018, so it's difficult to focus on the useful opinions. But you nailed it above. Thanks, VD!