A new report from Enverus Intelligence Research (EIR) warns of a return to $100 in crude oil prices in 2023. Citing OPEC supply management and the implementation of Russian oil sanctions , EIR predicts that the price of Brent crude will be pinned above $100/bbl despite near-term worries about a possible recession.
Another round of $100 oil prices will of course mean another period of higher gas prices at the pump for consumers. On Wednesday, AAA reported that the national average price for a gallon of regular unleaded was $3.355 per gallon, more than $1/gallon above the price when President Joe Biden took office, but well below. from the high of $5.016/gallon seen on June 14. .
At the same time, however, EIR’s analysis predicts lower US domestic natural gas prices. With the NYMEX Henry Hub Index sitting at $5.711/Mmbtu at the time of this writing, the report predicts gas will average $5.10/Mmbtu over the winter and then fall to $3.50 next summer.
Despite reports this week of the Chinese government easing zero-Covid restrictions, the EIR does not expect them to be fully lifted, saying in a statement that “measures can be relaxed, but the threat of further shutdowns will undermine Chinese business confidence and oil.” request.”
In what the New York Times Calling a “remarkable pivot,” China announced a general easing of those restrictions on Wednesday morning, which some say represents a victory of sorts for those who have led the massive protests against the restrictions across the country in recent weeks. Despite the apparent reversal of course, state media there described the sudden turnaround as a planned transition resulting from what Xi Jinping’s government claims was a “victory” over the virus.
It remains to be seen how the government will react if the easing of restrictions results in a resurgence of Covid infections. Oil markets reacted cautiously to news from China early Wednesday, but a resurgence in Chinese demand for crude could help accelerate the resurgence in prices predicted in the EIR report, given that its projection of a comeback at triple-digit prices comes despite its projection of moderate growth in U.S. crude supply.
“The supply of oil in the United States has disappointed this year, forcing us to lower our growth forecasts significantly. We now expect US supply growth of 560 Mbbl/d E/E in 2023,” said Bill Farren-Price, report author and director of the EIR.
The report also predicts moderate growth in demand for natural gas in the United States. “We forecast US gas demand growth of 2 Gcf/d in 2023, down 2 Gcf/d from 2022. Demand gains in 2023 will be limited after record consumption of 32.9 Gcf/d of gas for electricity in 2022,” said Farren-Price. .
It’s no secret that projected U.S. oil and natural gas production growth during a period of high commodity prices has been slowed in 2022 by a number of factors, including:
- Restricted availability of qualified oilfield workers, both in the E&P sector and for oil service companies;
- Explosion in the prices of oil consumables and steel;
- Limited supplies of sand, pipes and other drilling and fracking essentials;
- Rapidly increasing rates for rigs and fracturing gaps;
Perhaps more important than all of these other factors is continued investor pressure on drillers to focus more on improving cash flow and returns than on ramping up drilling programs, a phenomenon that has dominated the US shale play since at least 2019.
The tightness of pipeline extraction capacity from the two largest US producing basins, the Permian Basin and the Marcellus/Utica Shale region, is also having a significant impact on the increase in production. EIR notes that a temporary haul capacity crunch is also limiting growth in the Haynesville Shale area of northeast Louisiana, as travel on the Gulf Run Pipeline system will be limited to 0.5 billion feet. cubes per day until the Golden Pass LNG export facility begins operations in 2024. .
One of the key takeaways from this EIR report is that no one should expect U.S. shale to be able to fill a global oil shortage by increasing production by 2 million barrels per day over 12 months, as he did so from late 2018 to mid-2018. 2019. No one is touting American shale as the world’s new swing producer anymore as many did in those days.
Instead, the outlook for the EIR appears to be one of slow but steady, even healthy growth for the U.S. domestic oil and gas industry at a time when high commodity prices will be more than offset by costs. higher and difficulties in the supply of supplies and services. Not the rosiest outlook the industry has seen lately, but also far from the worst.