There are many in the Oil and Gas industry that couldn’t be more optimistic with how things are currently going to start out in 2018. In just six months, the US has seen a rise in Brent of 41 percent and a rise in WTI of 36 percent, both have risen above $60 a barrel respectively. Reuters reports, “Brent crude futures LCOc1 were at $67.78 a barrel, 16 cents above their last close. Brent hit $68.27 last week, the highest since May 2015.” Along with this news the US rig count decreased by five rigs last week, to a total of 742, which could be a contributing factor to price gains as well. Along with these figures the US is projected to potentially start rising closer to the amount the Saudi’s produce per day in 2018. The current US production is rapidly approaching over the 10 million per day mark and only expected to increase over 2018. The Saudi’s and Russia, number one and two in the world, account for roughly 21 million barrels per day.
Is everyone as optimistic though? Tom Kloza, Energy Expert that runs the Oil Price Information Service, did an interview this weekend with CNBC that shared his views on 2018 and the direction of the oil market. He was quoted as saying, “this is not going to be a Barry Bonds year with $70-plus per barrel for any stretch of time.” The CNBC article goes on to quote him regarding his views on how the market will look closer to March in saying, “these [prices] are probably $5 to $10 a barrel higher than what you'll see for the average of the year — maybe more and, I would suspect we'd see prices drop by the time the Oscars replace the Golden Globes.” The root of his outlook has a few factors that play into it.
- Rising production in the US will only further hinder the OPEC cuts.
- Expansion in US offshore drilling will promote more US Production.
- Record highs in net speculative length.
- Shale investors increased unhappiness with negative cash flows due to focus on supply growth.
- Cost inflation due to service companies taking profit back.
- Shortage in completion crews amongst well operators due to past downturn layoffs.
2018 will be an incredibly interesting year to come with how volatile this market has the potential to be. Historically speaking, volatility is currently about half that of the five year average. Meaning that, we are overdue for volatility.