As a busy 2019 in the oil and gas industry ends, analysts are busy issuing predictions about next year and what they would mean for oil markets and prices.
This year saw a mix of some of the more predictable events—such as OPEC and Russia extending their cooperation pact, twice—and a ‘black swan’ such as the September attacks on Saudi oil facilities which cut off 5 percent of daily global oil supply for weeks.
As black swans are, by definition, unpredictable, analysts focus on predicting the ‘knowns’ in the market for 2020 as they see them at the end of 2019.
There are many factors to watch in oil markets next year, both in the U.S. and globally.
For the sake of simplicity, here are 10 of the most important predictions and factors to watch in the oil and gas industry in the United States and worldwide.
Independent energy analyst David Blackmon has summed up some predictions, concerning mostly the U.S., for Forbes.
And these are:
1) U.S. shale production will continue to grow
U.S. shale growth is slowing down, but all analysts and organizations still expect oil supply from the United States to continue to rise in 2020. Growth may be slower, due to reduced capex from drillers, but U.S. will still be the main contributor to non-OPEC supply growth next year.
2) Rig count will remain stable
Despite the fact that the U.S. oil and rig count declined by more than 250 units this year to December 20 compared to the same time last year, the number of active oil rigs last week saw an increase of 18 rigs—the first double-digit growth since the beginning of April, according to Baker Hughes data. Related: Why Hasn’t Hydrogen Gone Mainstream?
3) U.S. oil and LNG exports will continue to rise
Exports of U.S. oil and liquefied natural gas (LNG) are expected to grow with the increase in infrastructure capacity in 2020.
The United States exported more crude oil and petroleum products than it imported in September 2019—the first month in which America was a net petroleum exporter since monthly records began in 1973, the U.S. Energy Information Administration (EIA) said earlier this month.
Total U.S. crude oil and petroleum net exports are expected to average 570,000 bpd in 2020 compared with average net imports of 490,000 bpd in 2019, according to EIA’s latest Short-Term Energy Outlook (STEO).
4) Oil and gas prices will remain range-bound in 2020
Rising production from non-OPEC nations not part of the OPEC+ deal, driven by the U.S., Brazil, and Norway, is expected to keep a lid on oil prices, while OPEC+ cuts and an expected pick-up in global economic and oil demand growth will keep a floor under prices.
5) Sudden supply outages will have smaller impact on oil prices
Due to the growing non-OPEC supply, unexpected and short-lived outages are likely to have a smaller impact on oil prices than they would have on markets five or ten years ago, analyst Blackmon says.
Case in point—the mid-September attacks on critical Saudi infrastructure sent oil prices soaring—with WTI Crude touching a five-month high of $62.90 a barrel—but just for one day, as slowing demand growth and a protracted trade war weighed on prices.
6) Bankruptcies in the U.S. shale patch are set to grow
The number of bankruptcies and companies seeking protection from creditors is expected to rise in 2020, continuing the trend from 2019.
Haynes and Boone estimated at end-September that the U.S. oil and gas industry had 33 filings year to date in September, more than the number of filings in each of 2017 and 2018, at 24 and 28 filings, respectively.
With reduced capital availability in equity and debt markets, more of the smaller companies could struggle through the next year.
7) U.S. oil and gas mergers & acquisitions are poised to rise
A growing number of distressed U.S. oil and gas firms and few funding options could mean that the ‘smaller guys’ could be acquired by bigger shale players or the smaller guys could team up to scale operations and cut costs.
Signs of consolidation in U.S. shale have already started to emerge, and the wave is expected to continue in 2020. Related: Bullish Sentiment Remains Despite Oil Price Dip
Shareholders of Callon Petroleum and Carrizo Oil & Gas approved an all-stock merger last week.
Two months ago, Parsley Energy and Jagged Peak Energy announced that Parsley would buy Jagged Peak in an all-stock transaction valued at US$2.27 billion, including Jagged Peak’s debt.
“The inevitable consolidation in the Permian has started and Jagged Peak made a decisive move to team up with the right partner,” said S. Wil VanLoh, Jr., a Jagged Peak director and the founder and CEO of Jagged Peak’s controlling shareholder, Quantum Energy Partners.
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In its Q3 2019 Oil & Gas deals insights, PwC said:
“In the quarters ahead, we expect to see more companies merging to create scale, companies continuing to focus on generating positive cash flows and shareholder value, while struggling companies will become more amenable to being acquired or seeking restructuring through bankruptcy.”
Internationally, the key factors to watch in oil markets will be:
8) How oil demand growth will fare as the U.S.-China trade dispute de-escalates
Oil prices hit a three-month high on December 13 amid growing optimism of a phase-one trade deal. In the days following the announcement that a phase-one deal had been reached, China removed six chemicals and oil derivatives from its list of tariffed U.S. imports.
9) How OPEC+ cooperation will proceed after March 2020
Another key factor to watch is what OPEC and its Russia-led non-OPEC partners will do after March 2020, when the current agreement for deeper cuts expires. The next move by the cartel and its allies will largely depend on how oil demand growth will fare in the typically low-demand growth season in Q1. The move will also depend on how much oil OPEC and friends will have managed to withhold from the market compared to plans—that is, whether all members will have fallen in line and stopped cheating.
10) Sudden supply outages in restive regions
Oil market participants will continue to monitor developments in Libya and Iraq, which could suddenly tighten the market more than anyone had intended to.
By Tsvetana Paraskova for Oilprice.com
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1- An Acceleration of the slowdown in US shale oil
2020 will witness an acceleration of the slowdown in US oil production including shale oil production. The claim by the US Energy Information Administration (EIA) that US oil production could rise to 13.8 million barrels a day (mbd) in 2020 is pure hype and self-delusional. Projected US oil production could average around 10 mbd.
The claim by the EIA that the United States exported more crude oil and petroleum products than it imported in 2019 is false. The US was a net petroleum products exporter to the tune of 3.2 mbd. It was also a net importer of crude oil to the tune of 5.163 mbd. Offsetting net product exports against net crude oil imports we come to a deficit of 1.963 mbd. This proves that the claim that the US became a net oil exporter is false. The United States will never ever become oil independent.
2- Saudi oil industry Is Now Hostage to the Houthis of Yemen & Iran
If the Saudi-led war in Yemen continues in 2020, retaliatory attacks by Iran’s allies, the Houthis, might resume targeting the most sensitive oil installations particularly the Ras Tannura loading terminal, the biggest in the world. A successful attack on Ras Tannura could cripple Saudi oil exports.
3- The Trade War
For almost two years the trade war has cast dark clouds over the global economy creating uncertainty in the global economy and depressing the global demand for oil and prices. A recent de-escalation gave oil prices a push upward. If the de-escalation continues into 2020, it will stimulate the global economy, enhance the global demand for oil and help prices surge to $75 a barrel if not higher.
Still, the global oil market should be wary of President Trump’s tendency to change his mind suddenly vis-s-vis a rapprochement with China particularly in the aftermath of his impeachment.
4- A New Nuclear Deal With Iran
There are small indications that President Trump could be inching towards a new nuclear deal with Iran.
A moment of monumental importance for US-Iran relations took place a month ago when a high-level exchange of prisoners took place in Switzerland. During the exchange the United States, for the first time, made it clear that it would resume negotiations with Iran on the removal of sanctions “with no preconditions.” Iran made it equally clear that it saw the prisoner exchange as the road to re-engaging in the Joint Comprehensive Plan of Action (JCPOA) nuclear deal. This is being seen as the beginning of the end of this extremely dangerous global stand-off between the U.S. and Iran.
The prospects for a deal with Iran have been bolstered by the firing of John Bolton President Trump’s former National Security Adviser and also by the weakening of Saudi Arabia in the aftermath of the Houthis’ devastating attacks on its oil infrastructure as well as by the fact that Israeli Prime Minister Binyamin Netanyahu wouldn’t dare attack Iran’s nuclear installations without the United States’ support and involvement, something President Trump has been trying to avoid.
The exchange of prisoners is being used by the United States as a fig leaf or a face-saving format to start negotiations with Iran. However, Iran will never accept any negotiations without a lifting of US sanctions against it first.
5- OPEC+ Cuts
OPEC+ current production cuts or any cuts in the future will hardly impact oil prices until the existing glut in the market which has been widened by the trade war into an estimated 4.0-5.0 mbd starts to decline steeply on continued de-escalation of the trade war.
Meanwhile, the only impact the cuts have had so far is to reduce the market share and revenues of OPEC members.
6- Oil Prices
Only a continued de-escalation of the trade war and continued soaring Chinese crude oil imports could enable oil prices to surge beyond $75 a barrel in 2020.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London