13 Feb February 13, 2018 – IEA forecasts increased US Oil and Gas Production to keep Oil prices in check for the foreseeable future…
I read in the Wall Street Journal today that the International Energy Agency updated their 5-year oil market forecasts, and speculate that US oil and gas production will shoot over 11 million barrels a day in 2019, perhaps even overshooting Russia as the leading global producer. Over the past decade, producers based in the United States have added millions of barrels to their overall daily production numbers as more of the US has opened up to drilling, and the industry has done a tremendous job of finding oil and gas inside shale formations. This production pushed prices down to USD$40/barrel in 2016 prompting bankruptcies among some weaker producers and prompted the major oil producing nations (ie, OPEC), as well as Russia to curtail production in an effort to support prices.
Increases in global oil demand, as well as the OPEC+Russia cuts, have supported prices and we’ve reached US$65/barrel for the past several months. US$65/barrel are high enough for most operators, including our portfolio’s Cenovus (TSX:CVE) to earn a pretty healthy living. However, as US production increases have taken hold, Oil prices have been dropping and we may see continued selling into the seasonally peak-demand months of May to September.
I remain comfortable with the CVE investment and the oil and gas markets in general. There are still millions of barrels of oil yet to be consumed by the Chinese and Indians as they continue to embrace motor vehicles. For certain, gasoline-powered cars continue to be more efficient and electric vehicles are the future, however, only one in 10 people own a car in China, versus one in two in the US. There is still a lot of growth in the oil business, yet to come.