Sproule adjusts forecast and pushes oil price recovery to 2019

Sproule has revised its oil price forecast, anticipating higher U.S. production growth in 2018. In its May 31 forecast, the independent petroleum consulting firm now expects US$65 for WTI in 2019, which is a year later than presented in its April forecast.

U.S. production growth is behind the revision. These production gains are mainly driven by light tight oil from the Permian basin, which is currently 0.4 million bbls/d above production rates this time last year. Supporting factors include a return to drilled-but-uncompleted wells and greater hedging by light tight oil (LTO) producers.

“So you might see U.S. production hit 10 million bbls/d next year, which will be record levels,” said Christoffer Mylde, vice-president, corporate development and partner at Sproule.

Otherwise Mylde expects limited production growth from non-OPEC oil producers (other than the U.S.) between 2018 and 2020 due to large global reductions in capital budgets.

OPEC producers, however, may struggle with production cuts compliance.

“You’ve also got countries like Nigeria and Libya that are exempt from the cuts,” Mylde said. “So we see an equal probability of downside to upside … going into next year.”

Sproule’s longer-term view remains unchanged. Oil prices are forecast to reach $70 by 2020, based on historically consistent global oil demand growth of 1.3 million bbls/d as well as increased oilfield service costs as activity levels build.

“So our longer-term outlook is that oil should be somewhere in the $60 to $80 a barrel range, which is $70 number we arrived at,” Mylde said.

If this delayed oil price recovery forecast is reminiscent of the multiple delays forecasted in the recovery of North American natural gas prices following the shale gas revolution—which ultimately never materialized—what are the chances of a similar scenario unfolding for global oil prices?

“Oil is a truly global commodity, so the dynamics we saw influence natural gas prices in the U.S. would not necessarily translate into the same impact on global crude prices, unless we continue to see light tight oil production climb uncontrolled over the next few years, in which case all bets are off,” Mylde said.

“We could very well have another dip in the [oil] price, well below current levels. There is always that prospect. But it’s going to be driven by the ability of those light tight oil producers to generate returns for their investors and, if further production gains lead to another dip in oil prices down to $20 or $30 a barrel, that’s not a particularly attractive investment thesis for any investor.”

Sproule Adjusted Price Forecast

YEAR

WTI (USD/BBL.)

BRENT (USD/BBL)

April 30, 2017 Forecast

May 31, 2017 Forecast

April 30, 2017 Forecast

May 31, 2017 Forecast

2017(remaining)

$ 55.00

$ 55.00

$ 57.00

$ 57.00

2018

$ 65.00

$ 55.00

$ 67.00

$ 57.00

2019

$ 70.00

$ 65.00

$ 72.00

$ 67.00

2020

$ 71.40

$ 70.00

$ 73.44

$ 72.00

2021

$ 72.83

$ 73.00

$ 74.91

$ 75.00

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