Say Goodbye to $100 Oil Forever– Welcome to the New Normal(ization)

Austin, TX (Oct. 2, 2017) – In the latest installment of its market outlook series, the Fundamental Edge, Drillinginfo has released The New Normal(ization), an updated 5-­year outlook for crude oil, natural gas and NGLs. The report analyzes crude oil and petroleum products supply/demand imbalance, a climbing rig count and effect from anticipated drilled uncompleted wells (DUCs), and natural gas demand scenarios for this upcoming winter.

“Supply continues to await demand, which is nearly the same situation we saw last quarter,” remarked Maria Sanchez, manager of energy analytics at Drillinginfo and lead author of this quarter’s market outlook report. “The economics of US production continue to support higher supply and even a slight improvement in prices translates into significant production gains. Demand is also growing, but the growth is at a slower rate than that of production,” said Sanchez.

Key  Takeaways:

• Crude Oil inventory normalization is necessary for sustained price recovery. However, even if the OPEC quotas are extended, US production will serve as a cap on how high prices can go.
• Natural gas normal weather will be key to keep prices in the $2.85-­$3.15 per MMBtu range over the next five years. Significant production growth is expected throughout 2018 as pipeline capacity from the Northeast comes online. However, some bottlenecks have started to develop in the Southeast region as production growth from the Marcellus, Permian and Anadarko tries to  find a home in LNG and Mexico exports.
• NGL production is expected to growth in the next five years as demand also increases in the form of ethane and LPG exports.

Drillinginfo estimates the long-­term price equilibrium at $60/BblWTI for crude oil and $2.85/MMBtu for natural gas. These prices are expected to materialize starting in 2020 and support production growth in all commodities at a rate to meet projected demand growth.