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2019 Oil and Gas Outlook

Posted November 30, 2018 in Articles

The oil and gas industry is notoriously unpredictable, especially with a long event horizon. But, that does not stop analysts and forecasters from doing their best to offer guidance about the potential direction of production volume, price and demand.

U.S. Energy Information Administration (EIA) Short-Term Energy Outlook (2018-2019)

The U.S. Energy Information Administration (EIA) recently issued a revised version of its Short-Term Energy Outlook for oil and natural gas through the remainder of the year and into 2019. Some highlights from the report include:

  • The EIA expects Brent spot prices to average $72 per barrel in 2019, slightly below the monthly average price for October 2018, and still significantly below the all-time highs we saw from 2011 through 2014
  • West Texas Intermediate crude prices will average about $7 per barrel lower than Brent spot prices throughout the year, according to the EIA. However, recent trading in the futures market puts prices early in the year at anywhere from $53 to $83 per barrel.
  • These anticipated price drops correspond to anticipated increases in U.S. crude oil production. Production averaged 9.4 million barrels per day in 2017 and is expected to average 10.9 million barrels per day in 2018; and, for 2019, the EIA forecasts a jump to 12.1 million barrels per day. With this production increase, the EIA expects global inventories to increase by 0.6 million barrels per day in 2019 after remaining essentially unchanged in 2018.
  • The EIA expects natural gas production to increase during 2019 as well. At current rates, 2018 is on pace to set a record at 83.2 billion cubic feet per day, and the EIA forecasts 2019 production at an even-higher average of 89.6 billion cubic feet per day in 2019.
  • The EIA “expects strong growth in U.S. natural gas production to put downward pressure on prices in 2019.” The agency is currently forecasting natural gas spot prices for next year at four cents less than the average for 2018.

J.P. Morgan Forecasts Even Steeper Price Declines

While there seems to be a general consensus that increased production will drive down prices in 2019, there is some disagreement as to just how far prices will decline. For example, while the EIA estimates an average per-barrel price of $72 for Brent crude, J.P. Morgan recently revised its forecast downward to $63 per barrel. J.P. Morgan is also expecting a lower average price for West Texas Intermediate crude – $58.25 per barrel compared to the EIA’s forecast of $65 per barrel.

What will actually happen? As always, it remains to be seen. But, for companies seeking to get ahead of the market and make strategic decisions about commodity and facility investments, analyzing all of the relevant financial and geopolitical factors can help reduce the level of uncertainty.

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