Blog

Debating the accuracy of the EIA’s predictions

U.S. Energy Information Administration

Todd Bennington | Kingdom Exploration Media
kingdomexploration.com

OPEC production cuts and per-barrel prices that recently went as high $65 are being counterbalanced by the U.S. Energy Information Administration’s prediction that U.S. crude production for the upcoming year will be record-setting. [1]

The agency is not without its detractors, however, who say it is overestimating things like the ability of technological developments to continue at a pace that enables increased production [2] while underestimating a turn by shale companies to the more disciplined approach of taking advantage of higher prices to pay down debt rather than expanding drilling operations. [3]

In a recent article at Seeking Alpha, Richard Zeits defends the EIA, saying that its critics need to better demonstrate where the agency’s calculations are allegedly breaking down and present their own detailed quantitative analysis as a basis for comparison. He goes on to say that criticism of the agency would ideally be part of a constructive discourse that helps it improve is forecasting process.

Zeits also notes that it’s the “least protected” category of investors who are most likely to be harmed by listening to possibly unsubstantiated claims made on blogs and in major media.

[1] https://www.reuters.com/article/us-usa-oil-eia-outlook/eia-raises-2018-u-s-oil-output-forecast-to-highest-on-record-idUSKBN1E62IP
[2] https://oilprice.com/Energy/Crude-Oil/Is-The-EIA-Overestimating-The-US-Shale-Boom.html
[3] http://www.pantagraph.com/business/investment/markets-and-stocks/this-oil-tycoon-thinks-the-u-s-government-s-oil/article_156fa0f7-a062-5ed3-8922-f15f1632675c.html
[4] https://seekingalpha.com/article/4131270-crude-oil-eia-bashers-check-numbers?source=all_articles_title

Extension of oil production cuts may mean higher prices in 2018

OPEC

Todd Bennington | Kingdom Exploration Media
http://kingdomexploration.com

OPEC and non-OPEC producers agreed last Thursday to extend oil production cuts that were set to expire in March until the end of next year. A meeting to review the agreement with an eye toward making any necessary adjustments has been scheduled for June.

Citing also the uncertainty surrounding social and political changes occurring in Saudi Arabia, at least one analyst predicts this could mean oil could reach $80 per barrel next year. [1]

Other factors potentially affecting oil prices include how the political situations in places like Libya, Nigeria, Venezuela, and Iraqi Kurdistan stabilize or deteriorate – as well as how U.S. producers react to price increases.

“If producers in the U.S. increase their rig count over the next few months due to higher prices then I expect another price collapse by the end of 2018,” an executive with one of the Permian Basin’s largest producers is quoted by Reuters as saying. “I hope that all U.S. shale companies will maintain their current rig counts and use all excess cash flow to increase dividends back to their shareholders.”[2]

[1] https://www.cnbc.com/2017/11/27/brent-crude-oil-may-hit-80-in-the-next-year-says-jim-oneill.html

[2] https://www.reuters.com/article/us-opec-meeting/opec-russia-agree-oil-cut-extension-to-end-of-2018-idUSKBN1DU0WW?il=0

Oil prices could go to $70 a barrel in 2018, analyst says

Arthur Berman
Art Berman

Todd Bennington, Kingdom Exploration Media

In a recent article published at oilprice.com, petroleum geologist Art Berman modifies his prior conservative stance on the likelihood of continued significant oil prices increases, writing that West Texas Intermediate (WTI) prices between $60 and $70 per barrel are almost certain early next year and could very well rise above $70.

Some of the important takeaways from Berman’s article include the following:

• U.S. inventory oversupply is ending due to a combination of increased exports of crude oil and increased domestic consumption.

• Increased oil exportation is the result of an increased price spread between Brent and WTI, allowing U.S. exports to be sold abroad at prices lower than international averages but higher than what they can be sold for domestically. Also, U.S. refineries tend to prefer heavier crudes over WTI.

• Increased consumption primarily from vehicle usage has contributed to the draw down in inventory. It is questionable whether such consumption can continue in the long run as increasing gas prices will discourage consumption by drivers. According to Berman, WTI at $70 a barrel would result in gasoline costing an extra $1 per gallon.

• Higher oil prices are good for oil companies but bad for consumers and can stifle general economic growth both globally and domestically.

• Berman suggests that tight oil plays do not have sufficient reserve potential to meet global supply needs and that will mean more reliance on deep-water projects, which are expensive and have longer development timelines.

Read Berman’s article at https://oilprice.com/Energy/Oil-Prices/Can-WTI-Hit-70-In-2018.html.