Bobbing around like dinghies in a turbulent sea, recent oil and natural gas prices have reflected their historic sensitivity to fluctuations in worldwide supply and demand and other factors.
Spokesmen for the Permian Basin Petroleum, Panhandle Producers & Royalty Owners, Texas Oil & Gas and Texas Independent Producers & Royalty Owners associations say the scenario, as always, is multifaceted.
“Earlier this year the price for West Texas Intermediate Crude seemed to be on a continual climb, going from just under $70 a barrel in May to $90 a barrel at the end of September,” said PBPA President Ben Shepperd. “Some predicted prices would continue to go up, possibly even reaching triple digits.
“Throughout October and into November, however, prices have been coming back down. Global demand worries, exemplified by Chinese refiners asking for less supply for December, seem to have counteracted the fear of production disruptions related to the war in the Middle East.
“In case there is any question,” Shepperd said, “our industry has been and continues to be one very much in which price is predicated on supply and demand.”
PPROA President Judy Stark said from Amarillo that the balance among the United States, Russia and China has come into play.
“The biggest reason for the price’s falling is, once again, supply and demand,” Stark said. “The U.S. has been producing at a record rate, Russian exports are on the rise and China’s demands are lower. Despite the wars there has been little disruption to supplies.
“I think production will continue at an expanded rate. However, expected ongoing cuts from OPEC-Plus will keep production growth lower and contribute to inventory draws and upward prices for early 2024. I don’t see the price of oil going much lower than current pricing and I expect that prices will remain steady through 2024 and 2025.”
TXOGA Chief Economist Dean Foreman reported “solid U.S. demand as evidenced by a weekly petroleum demand of 19.9 million barrels per day, which was in the middle of the five-year range, strong exports with net exports of 3.4 mb/d surpassing historical ranges and historically low U.S. crude oil inventories currently at the bottom of the five-year range.
“In addition China’s oil imports rose to 11.1 mb/d in October and OPEC-Plus continued their output cuts, indicating market discipline,” Foreman said. “Despite these robust fundamentals oil prices dropped by 13 percent between Oct. 20 and Nov. 10.
“This decline is attributable to factors such as high interest rates, reduced expectations for global economic growth and consequently oil demand as well as historical seasonal trends that have seen oil prices decrease between October and November in eight of the past 11 years, averaging a 3.9 percent month-over-month reduction.”
Foreman said market fundamentals remain strong, but global oil demand forecasts vary.
“The U.S. Energy Information Administration, the International Energy Agency and OPEC predict record highs for global oil demand in 2024 with growth estimates ranging from 1.3 to 2.3 mb/d,” he said. “Notably even the EIA’s conservative growth forecast of 1.3 mb/d for 2024 necessitates significant investments in new U.S. oil production, which is expected to be the world’s largest single contributor to output growth next year.”
TIPRO President Ed Longanecker said from Austin that his organization had been consistent with its forecast of $75-$80 oil for this year.
“We will continue to see global market volatility due to competing economic factors, inflation and geopolitical tensions, but we expect supply to remain tight and for demand growth to continue,” Longanecker said. “Investors are more focused on a slower demand outlook than the impact geopolitical conflicts will have on supply.
“The EIA’s recent Short Term Energy Outlook notes that despite expected increases in oil production in 2023 and 2024 and geopolitical issues in the Middle East and Iran, ongoing cuts from OPEC-Plus will keep global production growth lower than consumption, contributing to upward oil price pressure in early 2024.”
Longanecker said the EIA expects global production to stay largely the same despite the issues in the Middle East, Iran and Russia.
“If there is an escalation in conflict in the Middle East because of the recent attacks on Israel, production may drop,” he said. “However, we expect crude oil supply in the region to remain unchanged until then.
“The EIA has not updated its forecast production for the region, but it cautions that the geopolitical situation could change rapidly. Russian and Iranian supplies will largely remain flat in 2024 with Russia being expected to maintain its mid-2023 production.”
Longanecker said Iran may see a small increase in crude oil production as it continues exporting to China, but that will be limited by insufficient upstream investment, sanctions on its oil and limited consumption growth in China.
“Due to these factors we expect prices to remain in our forecasted range with no meaningful reduction in oil exports,” he said. “However, we expect a great deal of continued uncertainty in the market due to stubborn inflation, the potential for future interest rate hikes and federal fiscal policy having its desired economic dampening effect on consumer spending, which will continue to play out in early 2024.
“OPEC-Plus will keep executing its designed strategy to maintain high prices whether by continuing the current course or potentially calling for additional production cuts if prices dip further. And despite yet another forecast for peak oil demand, this time by 2030 from the biased IEA, we believe global demand will keep rising consistently for decades to come with periods of fluctuation and continued volatility due to conflicting market forces.”
Longanecker said the demand for liquefied natural gas in Asia and Europe is also increasing, but supply, especially from the U.S., “is being viewed as more than adequate by investors, coupled with European gas storage reaching capacity, thus avoiding a typical bump in price this time of year.
“U.S. natural gas futures rose due to higher weather-related demand, which could be short-lived with above-normal temperatures being expected across most of the U.S.,” he said. “Regardless we remain bullish on natural gas demand in the U.S. and rising LNG exports in the long-term with EIA having noted that natural gas future prices remain high enough to encourage robust LNG exports to both Europe and East Asia.”
