Crosby Blog

The 2019 Oil Predictions Are In!

Posted by Jeb Bellard on Jan 15, 2019 2:40:21 PM
Jeb Bellard
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The Oilfield for 2019_

Coming off of Oil's wild and crazy 2018, with prices rising to a four-year high in October before plunging more than $30 in the following months, oversupply and global demand has most of the industry worried. 
 
But what do the experts feel is on the brink for 2019?
 
One word: Volatile!
There are many power dynamics at play and “major uncertainties” and forecasting trends in 2019 are “even more hazardous than usual,” said Neil Atkinson, head of oil markets at the International Energy Agency. 
 
So, what will be the state of oil in 2019? Let’s see what the experts had to say.
 
Ryan Lance (CEO of Conocco Phillips) said, “We expect oil markets to remain volatile, in part driven by flexible North American shale production that can ramp up and down quickly in response to changes in investment levels.
 
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In order to thrive in this environment, given the short-cycle nature of shale, we believe it’s necessary to run an exploration and production business for sustained through-cycle financial returns, which is necessary for attracting investors back to the sector. Ours must offer investors both resilience to lower prices and participation in higher prices, and we’re doing that via an approach that rations capital across a low-cost-of-supply portfolio, competes on per-share versus absolute growth, and pays out a significant portion of cash from the business to shareholders.
 
From the resource and production standpoints, North American shale continues to be a bright spot in the global energy industry. Shale has transformed the industry and will enable the U.S. to stay positioned as the world’s No. 1 producer of both liquids and natural gas. We believe shale, especially the Permian Basin, can drive the industry’s growth for many years.Photo Jun 12, 6 07 48 PM
 
Among the most serious near-term risks we see to the energy industry are geopolitical uncertainty and factors that could reduce global economic growth and energy demand.”
 
Greg Sharenow (Portfolio Manager at Pimco) also shared his predictions along with his reasoning: “There will be a stark change from the past four years for commodity investors, as one big driver of balance and prices will be notably diminished. Specifically, OPEC has moved from competing for market share in 2014 and contributing to materially lower prices to then reversing course two years later, dropping output sharply and contributing to rising prices. But 2019, in many respects, might be notable for the lack of shock-and-awe OPEC policy as it shifts to an approach of limiting any surplus or deficit. This has some meaningful implications for markets and expected realized volatility.
 
OPEC’s decision should lead to a gradual stabilization of Brent prices and, dare one say, a return to a lower-volatility environment. That said, there are known unknowns that could upend the best-laid plans, such as whether the U.S. is able to continue to exceed production expectations; Whether the slowdown in the global economy devolves into something worse, or if policy makers can help change the trajectory; And how effective additional U.S. pressure on buyers of Iran crude will be, with the current set of waivers set to expire late in the second quarter of 2019 (conveniently just after the next OPEC meeting).
 
In addition, at the end of 2019, the International Maritime Organization is set to restrict sulfur content in marine fuels, offering additional potential support to lighter, lower-sulfur crude oils such as Brent. Currently, we see these risks as roughly balanced around our baseline and quite manageable for OPEC.”
 
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But how will shale be affected coming into the new year?
 
David Lebovitz (VP and Global Market Strategist at JPMorgan) fills us in: “Will we see more responsible behavior from producers in shale as we go into 2019. It does seem like they are becoming more disciplined in how they pump, how they invest and so the chances of a supply glut like we saw a few years back are not our base case.
 
Obviously what happens to OPEC, and the decision by Qatar to remove itself from OPEC and focus more on natural gas, is an interesting smoke signal that perhaps not all is alive and well, and you could perhaps see more fragmentation. It just feels like there is a bit of divergence in interests among that group. And my guess, given the state of politics globally, this is a situation or backdrop that could deteriorate going forward.
 
So in a world where hopefully the U.S. has some pumping discipline and OPEC isn’t as effective in curbing production as they have been, all eyes will be back on the U.S. as we make the transition.
 
It will require a psychological adjustment on the part of both consumers and policy makers. Because as we’ve seen, when the oil patch comes under pressure, employment comes under pressure and investment spending comes under pressure. So while we are still a consumption-driven economy with 70 percent of GDP coming from the consumer, we need to be sensitive that an increasing number of consumers have a more direct tie to the oil industry than previously.”
 
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But what makes 2019 predictions any different than attempting to forecast in previous years?
 
Neil Atkinson has the scoop:
 
“Forecasting trends in the oil market for the new year looks to be even more hazardous than usual. There is a long list of uncertainties on the demand and supply side of the balance.
As the new year progresses, the implementation in 2020 of new marine fuel regulations by the International Maritime Organization will draw closer. We will learn whether the shipping and refining industries are prepared for this major regulatory change without serious disruption to the fuel market.
 
For supply, there are many complicating factors: the recent agreement by OPEC countries and 10 non-OPEC producers to cut oil production will, if it is successful, help to re-balance an oil market that was becoming over-supplied. We will see what the U.S. decides with respect to the second round of waivers for Iran’s oil customers. Will we see a significant further decline in production from Venezuela? Will Libya manage to maintain production or will it fall victim to more regular interruptions?
 
These are major uncertainties. What the IEA hopes is that the market is able to operate in 2019 without the very high volatility we saw in 2018. It was not good for consumers to see oil prices above $85 a barrel as we did in early October. But nor is it good for producers for prices to fall to $55 a barrel as this will inhibit investment in much-needed new production capacity.
 
How accurate will these experts be in the coming year? Only time will tell...
 
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WHO ARE WE?

Crosby Construction Services has serviced oil and gas producing companies throughout the gulf coast since 1979. Offshore and Onshore Hook-up, Construction, and Maintenance & Reliability crews mobilize from the main shop location in The Port of Iberia; in addition, the Port of Iberia facility provides all primary fabrication services. Experienced project managers take your job from inception to completion, and apply quality assurance standards to each job to see that your expectations of cost, time scheduling and quality of work are met. 

Topics: Insider, oilandgas

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