02 Jul Half-Year Prediction Review
At the beginning of the year I write an opinion regarding where we think the industry will be domestically for a calendar year and where the advantage may be from an investment standpoint. I like to revisit this around July to see how things stand.
I’m not going to pat ourselves on the back on what we got right…you can read our opinion in January for that. Let’s review where we “missed”.
- Rig count and stockpiles should be fairly stable throughout the year as world and domestic demand is only seen to rise no more than 5%. Rig count may have a higher percentage of re-entry vs exploration.
Rig count in TX alone went from 161 in January to 221 today.
- Some oil economists are predicting market price increases with volatility especially in Q1. It may create an artificial price spike with WTI and natural gas pricing in Q2.
Price increases are not artificial. It’s here to stay through the year.
- Lack of exploration makes for a scenario for increased demand and prices in 2022 with supply “chokes”
We’re seeing these “chokes” now!
- We’re predicting no lower than $45 WTI/ $2.70 natural gas and no higher than $73 WTI/$3.30 natural gas for 2021 for extended periods. WTI is $52 today and gas is $2.70…
WTI @ $73 and natural gas @ 3.60 today.
So, What Happened?
Current Administration: As predicted, we knew that administrative actions would elevate prices (closing Keystone and gov’t lease development were easy calls). However, we were thinking more “Obama”. What we didn’t account for was federal unemployment extensions beyond Q1, causing massive labor shortages along all lines of manufacturing, distribution, and services. This has pushed all supply chains as demand is not being met because of…
Unprecedented consumer demand: We predicted that consumption would be coming up from demand, especially on transportation side (goods transport, office travel, tourism rebound, etc.) as the economy start to open up from our artificial shut-down. What we didn’t expect was the amount of cash being thrown around by consumers and extremely low bank financing rates…causing unprecedented inflation on all goods and real property, affecting directly and indirectly pricing.
Scorching Hot Weather: Early summer high heat has produced significant strain on the electrical grid. Records were broken this week all over the West. Renewables cannot keep up and hydro is falling rapidly as a reliable source. This mean all fossil fuel electrical producers are producing at full capacity.
The good news is that the oil and gas industry will have steady domestic demand for the entire year. The trick will be how E&P companies can streamline their labor to be more efficient and how savvy they can be to find equipment.
We estimate now WTI @ $85 by September and Natural Gas @$4.20 by November.
Best bet? Look for shallow exploration and re-entry programs, where equipment is already on the lease or is in greater supply for purchase.
And yes, we have those!