U.S. Oil Outlook Slammed By Lower Prices
The recent slide in oil prices may finally start impacting U.S. oil production forecasts.
The plunge in oil prices in November and December spread gloom around the industry. Comments from anonymous oil executives in a survey from the Federal Reserve Bank of Dallas from earlier this month clearly depicted the creeping pessimism from oil country. “I expect the dramatic, unexpected and significant drop in oil prices will significantly decrease revenue for the first half of 2019. I intend to mitigate this by stopping all drilling and deferring any new projects,” one oil executive told the Dallas Fed.
Another worried about lack of financing for drilling. “It feels like the capital markets (equity and debt) are backing up fairly hard, which will have a noted impact on capital spending if sustained. Coupled with the fall in oil prices in the past six weeks, this could cause 2019 plans to get pared back,” the executive said.
But the downturn in oil prices, and even the gloomier outlook from oil executives themselves, hadn’t really fed through to oil production forecasts. The projections for U.S. shale still included heady growth figures, despite the plunge in prices.
That is, until now.
“As a result of the slide in oil prices over the past three months, operators have already started to guide down activity for 2019 compared to their initial plans to ramp up activity,” Rystad Energy wrote in a new commentary. “Consequentially, we have lowered our expectations for oil production growth by about 500,000 bpd for 2020 and 2021, implying less need for takeaway capacity.”
Rystad says slower production growth might put a lot less urgency on the closely watched midstream bottlenecks. “This raises the question as to which (if any) of the pipelines projects in the Permian slated for development will move forward if there is less oil to fill them,” Rystad stated.
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