American Oil and Gas Reporter - January 2015 - 70

Outlook 2015
er and upper limits . . . were $82 and $112 a barrel."
J.P. Morgan acknowledges that its more optimistic price forecast of $77.25 a barrel "reflects our expectation that U.S. crude
market pricing will be driven largely by international crude market developments. Inaction by the Organization of Petroleum Exporting Counties would require an adjustment by non-OPEC producers-something that likely would require prices to move materially lower than we currently envisage and take several quarters to be achieved."
Second guessing OPEC is no easy task. At the time of OPEC's
ministerial meeting on Nov. 27 in Vienna, when WTI prices were
in the range of $74 a barrel, an analysis published by BBC News
noted that the national budgets of OPEC members such as Iran,
Venezuela and Nigeria already were becoming hard pressed. And,
"Even for those such as Saudi Arabia . . . there comes a point below which even they will start to get uncomfortable."
The BBC published a chart, citing Deutsche Bank and the International Monetary Fund as sources, that showed the oil price
needed by the various OPEC nations to balance their national budgets. It ranged from highs of $184 a barrel for Libya and $131 for
Iran and Algeria, to lows of $81 a barrel for the United Arab Emirates, $78 for Kuwait and $77 for Qatar. Saudi Arabia was toward
the middle at $104 a barrel.
Two weeks later, a report in Reuters quoted Venezuelan Foreign Minister Rafael Ramirez saying OPEC must act because "that
is our job. We want stability in the market and predictability."
However, the same report quoted Saudi Oil Minister Ali alNaimi saying, "Why should we cut production?"

And a few days after that, CNNMoney quoted UAE Energy
Minister Suhail Al-Mazrouei as saying, "We are not going to
change our minds because the prices went to $60 or to $40."

FIGURE 2A
Crude Oil Prices at Which Operators
Would Alter 2015 Drilling Plans

FIGURE 2B
Natural Gas Price at Which Operators
Would Alter 2015 Drilling Plans

Finding A Cure
Going back to those old saws, "What goes up must come
down." In oil patch jargon, "The cure for low oil prices is low oil
prices."
While no one knows how far oil prices will fall or how long
they will stay there before coming back up, there are a variety
of opinions about the effects of various price levels.
For example, in its December Short Term Energy Outlook, EIA
lowers its projection of U.S. crude oil production growth this year
from 1.0 million barrels a day to 700,000 barrels a day, and comments, "Many companies will redirect investment away from marginal exploration and research drilling, and into core areas of major tight oil plays. Oil prices remain high enough to support development drilling activity in the Bakken, Eagle Ford, Niobrara
and Permian Basin, which contribute the majority of U.S. oil production growth."
Morgan Stanley, likewise, has cut its estimate of U.S. production growth this year from 1.0 MMbbl/d to 700,000 bbl/d, according to published reports, and IHS Inc., which also is predicting
U.S. production will increase by 700,000 bbl/d this year, says,
"Most of the potential U.S. tight oil capacity additions in 2015
(about 80 percent) have a break-even price in the range of $50
to $69 a barrel."
On Dec. 15, when the WTI spot price at Cushing closed at

86.7%

80
70

82.4%

69.9%

66.2%

60
49.4%

44.6%

40
30

25.3%
23.0%

20
10

©AOGR

0
50

100

110

120

Cumulative Percent of Operators

100

100
90
80
70

84.8%

75.6%

73.9%

51.1%

50
40
30
20

26.1%
17.8%

WTI Spot Price at Cushing (Dollars per Barrel)

Wellhead Natural Gas Price (Dollars per Mcf)

Percentages in Figures 2A and 2B represent the cumulative total of
survey respondents that indicate they would have altered their 2015
drilling plans by the time the spot price for West Texas Intermediate
crude oil delivered at Cushing, Ok. (Figure 2A), or the wellhead

natural gas price (Figure 2B), reached the indicated amount. Prices
at which drilling would decrease are plotted to the left of the graphs
in downward curves; prices at which drilling would increase are
plotted to the right of the graphs in upward curves.

70 THE AMERICAN OIL & GAS REPORTER

American Oil and Gas Reporter - January 2015

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