Some relatively good news that oil demand is expected to increase in 2016 comes from one company that analyzes economic conditions impacting the oil and gas industry.
Morgan Stanley issued their analysis of the exploration and production (E&P) sector of the oil and gas industry last week, saying it expects demand to increase and oil supplies to decrease in 2016 because of the low crude oil prices.
“We expect the oil market will balance and supply and demand to invert in late 2016 as both supply and demand are affected by lower commodity prices,” its report on North America Exploration and Production stated.
The report also noted an improvement in value of E&P companies as the technology to extract crude oil and natural gas from shale continues to improve.
Morgan Stanley expects mergers and acquisitions to continue.
OPEC supply growth and resiliency of shale production has prolonged the recovery, and the rise in demand, which has been robust in 2015, will be a key component of price recovery in 2016.
“Most E&Ps currently use $45 to $50 per barrel West Texas Intermediate (WTI) forecast in budgeting. We believe most operators are planning 2016 activity based on $45 to $50/bbl WTI with sensitivities to the upside,” Morgan Stanley said in the report.
“Actual budgets will depend on prevailing price, which we expect to persist $45 to $50 WTI over next three months,” the report stated. “If WTI moves to $60/bbl by mid-2016, we expect activity response to be moderate, with a minimal amount of incremental production by year-end.”
Look for capital expenditures to decline 17 percent in 2016 from 2015.
While the report focused primarily on the oil side, it did note that natural gas prices are expected to be in the $3.11 to $3.75 range.
If the report proves to be accurate, it will mean crude oil prices will not go any lower and natural gas prices will increase slightly. Recovery will be slow.
Alex Mills is president of the Texas Alliance of Energy Producers. The opinions expressed are solely of the author. For current crude oil and natural gas pricing information, go to www.texas alliance.org.