American Oil and Gas Reporter - January 2016 - 44

Outlook 2016
year, $2.50 in 2017 and $2.75 in 2018.
In writing on the Organization of Petroleum Exporting Countries' December
ministerial meeting, Oil Daily cites a
Goldman Sachs projection for $45 WTI
in 2016.
Oil Daily also quotes Sanford Bernstein
analysts projecting $2.75 an Mcf natural gas
prices in 2016, $3.00 in 2017 and $3.25 in
2018. In a shorter-term outlook, Societe
Generale forecasts Henry Hub prices won't
rise above $2.30 in the first quarter of this
year, then will creep to $2.45 an MMBtu
in the second quarter, $3.05 in the third
quarter, and $3.45 in the fourth quarter.
A Raymond James analyst told the Independent Petroleum Association of America's 2015 Fall Supply & Demand Committee meeting in November he expected
WTI to average $55 in 2016 and $70 between 2017 and 2020, and Michael Cohen,
director and head of energy commodities
research at Barclays in New York, predicts
$56 WTI this year (see story page 34).
The U.S. Energy Information Administration's Short-Term Energy Outlook
for December has WTI spot prices averaging $45.61 a barrel in the first quarter
of this year before rising to $54.00 a barrel by the third quarter, then dipping to
$52.33 in the fourth quarter as production
begins to rise again. EIA projects Henry

Hub gas prices will increase steadily
from $2.36 an MMBtu in fourth quarter
2015 to $3.27 in fourth quarter 2016.
Kent Moors is a consultant and professor in the Graduate Center for Social and
Public Policy at Duquesne University,
where he directs the Energy Policy Research
Group. Moors makes investment recommendations in various newsletters, including the Energy Advantage and his e-letter,
Oil & Energy Investor, where he writes, "By
July 1, WTI should be at $66. By Oct. 1,
WTI will be at $68, and by Jan. 1, 2017,
WTI should finally breach $70 a barrel."
And then there is Michael LaMotte, senior managing director at Guggenheim Securities, who made a market-moving call
on Dec. 7 by upgrading 23 oil field service stocks to "buy" rating. In a note to
clients posted on oilpro.com, LaMotte
states, "We believe the global oil market
will begin to tighten in second quarter 2016,
and that oil prices will rise farther and faster
than the lower-for-longer consensus expects, reaching $100 a barrel by 2018."
LaMotte explains his reasoning in a
CNBC interview also posted on
oilpro.com, in which he says, "From
2010 to 2014, it took almost $1 trillion and
five years of $90+ oil to get oil (production) growth from 100,000 to 1.0 million
barrels a day in the United States. Our sup-

Setting The Stage
The emerging expectation for a sharp rebound in the second half of 2016 is detailed
in Evercore ISI's Global E&P Spending
Outlook, released Dec. 8, for which Evercore "had discussions with or analyzed financial and strategic documents for almost
300 oil and gas companies."
In it, Evercore acknowledges a 31
percent drop in the U.S. exploration,
drilling and production sector's 2015
capital expenditures, and predicts another 20 percent pullback in 2016. However,
despite this near-term pain, Evercore
writes, "We believe these conditions ultimately will cleanse the oil patch and set
the stage for a sustained upcycle. We anticipate significant capital investment revisions to unfold in 2016 . . . particularly if commodity prices strengthen as we
anticipate by the middle of the year.
"It always looks the worst at the bottom of the capex cycle, which we are approaching," Evercore continues. "Once the
market has visibility on this capital spending bottom, the recovery comes into view.

FIGURE 2B
Natural Gas Price at Which Operators
Would Alter 2016 Drilling Plans

FIGURE 2A
Crude Oil Prices at Which Operators
Would Alter 2016 Drilling Plans

100

100
89.4%

90
75.6%

70.5%

70
60

50.0%
54.5%

50
40
30

25.6%

26.5%

10
0

Cumulative Percent of Operators

ply/demand balance has a call on the U.S.
resource of 1.0 MMbbl/d again in 2019,
and I think three years is just too fast and
$50 is not a high enough price to get that
kind of capital deployed again."

89.2%
76.4%

80
70

64.9%

48.6%

50
40
30
20

18.1%
16.2%

10
0

30 35 40 45 50 55 60 65 70

75 80 85 90 95

WTI Spot Price at Cushing (Dollars per Barrel)
Percentages in Figures 2A and 2B represent the cumulative total
of survey respondents that indicate they would have altered their
2016 drilling plans by the time the spot price for West Texas
Intermediate crude oil delivered at Cushing, Ok. (Figure 2A), or the

44 THE AMERICAN OIL & GAS REPORTER

0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50 5.00 5.50 6.00 6.50 7.00 7.50

Wellhead Natural Gas Price (Dollars per Mcf)
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.

American Oil and Gas Reporter - January 2016

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