04 Feb Predictions 2018
At the beginning of the year I like to 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. We’ve been MOSTLY accurate (taking out 2014) and in the past, have felt confident we can make a decent prediction with some caveats.
To recap 2017, there were some significant moves and non-moves made in the oil and gas market. It mostly has to do with the realization on a world-wide basis that oil is not scarce and exploration and production costs do matter to the bottom line.
- OPEC and non-OPEC allies played very well with each other this year. We thought, based on history, one of the allies would go over-quota and start a price war again. Really didn’t happen.
- Large US producers did not get overzealous and over-produce with small spikes in market price.
- US is now exporting more product than ever, due to the US’s ability to deliver product on an honest basis and build-up of infrastructure (even though it may be more $ per barrel than dealing with other factions)
- China’s economy did not make any significant gains, therefore not attributing to any significant demand for hydrocarbons on the world market.
This year, we anticipate the following:
- OPEC and non-OPEC members have agreed to continue production cuts through 2018. Since they kept to the game plan in 2017, we give them the benefit of the doubt for 2018
- Although US corporate tax cuts are significant, industrial growth will follow a little slower than most expect due to the strength of the dollar.
- Neither China nor India will develop enough new demand to outpace supply based on their current overall economic conditions.
- Large US producers will stay the course and mostly develop what’s in reserves (PDP) and stay onshore. ANWR will not affect price for years to come (as an Alaskan I’m thrilled it’s now open to possible exploration and production).
- “Cheaper” oil on the market from questionable sources will keep US oil export demand steady
Of course, there are possible factors that could increase prices rapidly:
- How many US dollars will be “re-patriated” back into the economy from overseas accounts and IF it correlates to rapid industrial growth.
- Foreign investments have dramatically increased in 2017 into US oil and gas assets (and other industries) and may increase in 2018. Knik Energy has seen an increase of 55% more in funding from 2016 from clients living abroad with accounts in the US. This may start bringing up domestic prices on programs, including the ones we offer.
- Possible Middle East tensions disrupting oil flow (like almost any year)
So, what does this mean for the direct oil and gas investor today? It’s a year of stability with slight uphill trend, which means that both buy and sell side will stay in balance as it did much in 2017.
It’s the long game, which I feel will pay significant dividends for the direct investor in the next 2-5 years.
I’m predicting no lower than $50 WTI/ $2.80 natural gas and no higher than $70 WTI/$3.30 natural gas for 2018.