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Oil Market Outlook: Are Prices Set for a Correction?

As US rig counts plateau and storage inventories both globally and domestically continue to decline, WTI has found support above the $50/bbl mark. However, even with the recent decline in drilling rigs, BTU Analytics estimates that the US is still on track to grow another 1.6 MMb/d through next year. On top of that, while the market consensus is that OPEC will extend cuts, risk remains surrounding the final decision and how enforceable it will be given that cash strapped OPEC members like Venezuela are on the brink of chaos. Could it be that we are on the brink of another oil price crash?

In order to help clients understand the impact to pricing represented in both domestic and global risks, BTU Analytics has developed the Oil Market Outlook (OMO).  This monthly report helps our clients navigate these risks and to understand the increasingly influential role the US plays in the global oil market.

Starting from the bottom up, BTU Analytics forecasts oil, natural gas, and NGL production in over 90 distinct areas of the US and Canada. This allows BTU Analytics to incorporate a multitude of factors including producer cash flow and hedging, breakeven economics, drilled but uncompleted wells and regional pricing differentials into production forecasts. Building on top of that, BTU builds a global oil balance that is integral in driving BTU Analytics’ view on US and global oil prices, all of which is included in the Oil Market Outlook.

The slide below shows a simplified version what the global balance could look like through 2018/2019 at current US drilling activity levels. The Oil Market Outlook includes a more thorough approach to global balances that incorporates BTU Analytics’ forecasts of production and prices. Nevertheless, we can see under this scenario, the global market is expected to return to building inventories by the second half of 2018 and could return to being well over 1 MMb/d long by 2019.

Shifting our focus to the domestic side of the oil market, BTU Analytics tracks major oil pipeline projects that will impact regional differentials for the major crude areas including: the Permian, the Eagle Ford, the DJ Basin, and the Williston Basin.

For example, over 2.3 MMb/d of new pipeline capacity has been announced to serve the Permian Basin, with several projects slated for late 2017/early 2018 completion. However, if these projects face delays then as early as the end of 1Q 2018, based on current drilling, pipeline capacity could be in short supply and regional differentials could widen to support rail movements.

For both a global view and granular domestic view of what is happening in the oil market, including global crude balances, price forecasts, and regional transportation constraints request a free sample of the Oil Market Outlook report.

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Erika Coombs is Senior Manager of Energy Markets at BTU Analytics. She leads the team to deliver energy-market analysis and provides BTU Analytics’ customers with critical information for a variety of energy markets including oil, gas, and NGLs from wellhead to downstream markets. She also oversees BTU Analytics’ oil and gas product suite which includes research on upstream, midstream, breakeven economics, and commodity pricing dynamics. She holds an M.S. in Mineral and Energy Economics from the Colorado School of Mines.

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