Austin, TX (July 23, 2019) – Drillinginfo, the leading energy SaaS and data analytics company, has released Pricing in Politics, the 3Q2019 installment of its FundamentalEdge series. This market outlook service presents the company’s current view of the oil, natural gas, and NGL markets, and where they are headed over the next five years.
Pricing in Politics explores energy trends and pricing in a market highly affected by geopolitics and the continued impacts of sanctions and tariffs. “The story for 2019,” the report reads, “has been one of dashed hopes for those bullish market participants that believed a redoubling of efforts by OPEC+ would solve the oversupply conditions.”
“The trade tensions between the U.S. and China are creating a global economic activity slowdown and we’re continuing to see the effects politics has in crude oil pricing,” said Bernadette Johnson, Vice President of Strategic Analytics at Drillinginfo. “Even if OPEC keeps production constant and the U.S. and China agree to no further escalation in tariffs, non-OPEC production growth will remain in excess of global incremental demand.”
“While the price crash at the end of 2018 caused a drop in U.S. rig count in America’s shale plays, prices have recovered and the new mantra of free cash flow, return to shareholders, and ‘do more with less’ has caused operators to rethink their drilling and completion schedules and strategies,” said Johnson.
“With more than 1,000 wells drilled, but sitting uncompleted in the Permian, means there is a lot of crude oil production that could come on line quickly, but is not currently accounted for in the storage numbers or balances. U.S. basins continue to prove they hold great economics that result in continued growth expectations for production,” said Johnson.
Key Takeaways from the Report:
- Efforts by OPEC+ and declines from Venezuela and Iran have eased excess supply; however, escalating trade tensions between China and the U.S. and their effects on global economic health and demand growth have been keeping a lid on prices. Heightened geopolitical tensions between Iran and the U.S. provide some support for prices, but ultimately demand needs to increase for fundamentals to support a balanced market and prices. The OPEC meeting and news around U.S.–China trade tensions will set the tune for next quarter.
- Natural gas prices for Henry Hub have plummeted recently, trading under $2.30/MMBtu. Only a month ago, prices were above $2.60/MMBtu, and during the first quarter of the year, prices reached $3.00/MMBtu. Despite record-high LNG export levels, underwhelming early summer power demand along with strong production growth have pushed inventory levels up. Looking ahead, natural gas prices of $2.60-$2.75/MMBtu will balance the market, allowing production to increase at a rate to meet the expected demand growth.
- NGL prices have taken a downturn in the first half of 2019. Production and stocks are at or near record levels for propane and butanes, causing downward pressure on prices. Additionally, prices have been impacted by slowing global economic demand as well as the trade war between the U.S. and China, as LPG exports to China have become nonexistent.
- The E&P mantra remains focused on capital efficiency, living within cash flow, and returning cash to shareholders. These themes are here to stay. Q1’19 earnings reports show little change to E&P guidance for 2019. Chevron and Occidental spiced up the earnings season with the bidding war on Anadarko. Despite that, Q1 yielded 10-year lows in the upstream deal market. Expect Q2’19 reports to continue to explore how operators are handling price volatility and discussions on efficiencies, Permian gas bottlenecks, and M&A.