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Oil Drops As Demand Recovery Stalls

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Will Low Prices Save Long-Term Oil Demand?

Will Low Prices Save Long-Term Oil Demand?

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Robert Rapier

Robert Rapier

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Grading 2017 Oil Price Predictions

The results of my 2017 energy predictions were a mixed bag this year.

I correctly forecast that Donald Trump would take action on some stalled pipeline projects and that oil would flow through the Dakota Access Pipeline this year. He did, and it did.

I thought the price of West Texas Intermediate (WTI) would reach $60 a barrel. It finally touched that level in the last trading week of the year. But I also thought the yearly average would be around $58/bbl. WTI made its move too late in the year for that average to be realized. As I write this there are still two trading sessions left in the year, but the average yearly price should wind up around $51/bbl. Lower than expected oil prices were partially a response to higher than expected shale oil production — which I address below.

I thought natural gas prices would move higher over 2016 numbers. They did. After averaging $2.52 per million Btu in 2016, the average 2017 price through November is $3/MMBtu. However, I thought the yearly average would be at least $3.50/MMBtu.

I underestimated how strongly U.S. shale oil production would bounce back. I projected that the daily average crude oil production in 2017 would be at most 300,000 barrels per day (BPD) above the 2016 numbers. The average for 2016 was 8.86 million BPD. Final numbers won’t be available for a couple of weeks, but it looks like the 2017 average will be about 9.25 million BPD. That would put the 2017 annual average at 385,000 BPD over the 2016 average. Notably, we end the year with strong momentum. The monthly production numbers are now 1 million BPD higher than they were a year ago. Related: The Single Biggest Oil Price Influencer In 2018

My biggest miss was predicting that Master Limited Partnerships (MLPs) would bounce back in 2017. I forecast that the Alerian MLP Index (AMZ), the benchmark for midstream MLPs, would generate a total return of at least 20 percent in 2017. But MLPs have diverged from oil prices this year, and remain in a bear market. The AMZ’s total return for the year (including dividends) at press time is -7 percent. The index irrationally moved down as oil prices have rallied.

Overall my track record for this year was mixed. I was exactly correct on the DAPL, directionally correct on several other predictions, but had a big miss on the AMZ prediction. If I give myself partial credit on some predictions, I would judge the year a “C.” If each prediction is Pass-Fail, then overall, it’s “Fail.”

This wasn’t nearly as good as my 2016 record, and a far cry from my perfect record in 2014. This year was more like 2015, where I missed the mark on several predictions.

Nevertheless, in the next column I shall attempt to project 2018’s energy trends.

By Robert Rapier

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