Continued growth of domestic oil production has added an unexpected twist to the mix of facts and figures that go into annual market forecasts, but a consensus appears to predict steady expansion of both supply and global energy demand.
Among the leading oil producers, Saudi Arabia was reported to have followed through on its pledge to cut production by 600M b/d. As a result, by late-January the international benchmark price for Brent crude climbed back above $60/bbl. Prices for the domestic benchmark West Texas Intermediate followed suit and WTI was trading at $53.40/bbl. at the end of the month.
The market was further buoyed by U.S. sanctions against the state-run oil company in Venezuela, although the actual effect of reduced Venezuelan oil supplies was discounted since that nation’s oil output has steadily declined over the past half-decade.
The long-anticipated market rebalancing, where global oil production reaches rough equivalency with demand, will likely not occur within the near future, according to a year-end forecast by the International Energy Agency,
“The journey to a balanced market will take time and is more likely to be a marathon than a sprint,” observed IEA forecasters.
Oil production in the U.S. was “incredible and unexpected,” the agency noted. For the year, IEA reported, U.S. oil production grew by 2.1MM b/d and is expected to remain on track to grow another 1.3MM b/d in 2019.
While the two other global oil giants, Saudi Arabia and Russia, promised to voluntarily cut output, the U.S. “will reinforce its leadership as the world’s number one crude producer.”
Year-end reports from the Big 3 oilfield service companies, however, dampened that optimism.
Leading the slow-growth parade was Paal Kibsgaard, CEO at Schlumberger.
“We expect total E&P investments in North America to be flat to down, which means that it’s going to be a fairly tough year,” Kibsgaard told an investor conference call in January. Similar gloomy forecasts emanated from executives at Halliburton and Baker Hughes.
Despite the self-serving predictions of the big completion companies, the oil price still drives E&P capital expenditures.
A recent report from the National Bureau of Economic Research showed how E&P CAPEX lags oil prices but still moves in lockstep.
“Oil-related investment generally tracks changes in the price of oil with a one- or two- quarter lag,” said Richard P. Prisinzano, a senior economist at Penn Wharton Budget Model, a leading contributor to the NBER report.
And while oil CAPEX is “naturally tied to the price of oil, the magnitude of these impacts of the overall domestic economy is much larger than was typical before the shale boom, the report observed. As a result, changes in oil prices are now an important driver of changes in overall business investment,” Prisinzano said.
Finally, the annual Energy Outlook report from the U.S. Energy Information Agency predicts continued growth in oil production through the next six years.
Projected domestic oil and condensate production
• 2018 - 3.866 billion bbl.
• 2019 - 4.301 billion bbl.
• 2020 - 4.696 billion bbl.
• 2021 - 4.903 billion bbl.
• 2022 - 5.108 billion bbl.
• 2023 - 4.449 billion bbl.
• 2024 - 5.025 billion bbl.
Source: Energy Information Administration
Domestic dry natural gas production is expected to see more modest production increases, averaging 4 percent annual growth, through the middle of the next decade, EIA predicted.