EY Price Point: global oil and gas market outlook, Q319EY
The theme for this quarter is consistency: in the significant trends impacting prices, at least. The forces that impacted oil prices in the second quarter were the same as those that have impacted prices quarter after quarter for the past several years. Surging North American production counterbalanced by OPEC+ production cuts has kept prices in a fairly narrow range. The market has become remarkably resilient. For some time now, long-dated oil futures have traded at a price very close to the market’s view of the break-even price of unconventional oil in North America.
EY Price Point: Global Oil and Gas Market Outlook - Q3EY
The oil and gas sector is constantly changing. Increasingly uncertain energy policies, geopolitical complexities, cost management and climate change all present significant challenges. EY’s Global Oil & Gas Sector supports a global network of more than 10,000 oil and gas professionals with extensive experience in providing assurance, tax, transaction and advisory services across the upstream, midstream, downstream and oil field sub-sectors.
EY Price Point: global oil and gas market outlookEY
We enter 2021 on a note of cautious optimism for global health, the world economy, and the oil and gas markets. The first weeks of December brought approval in the US and the UK of the first of several COVID-19 vaccines. The speed with which vaccine development occurred is unprecedented, but certainly welcome. In the weeks following the early November announcement of 90+% effectiveness by the manufacturer of the first approved vaccine, the price of WTI crude oil increased by US$10/bbl to US$48/bbl, the highest level since early March. Sustainability hasn’t returned yet, and whatever time it takes to get the world to normal, it will take even longer for normalization within the oil and gas markets. Inventories remain at historically high levels and, optimistically, it will take until April before inventory returns to levels observed in the preceding five years. That’s an estimate, and there has obviously been some difficulty properly calibrating the expectations of how balance will return and how long it will take. In late November, OPEC met to adjust its output plans because of the anemic rebound in demand. In mid-December, the IEA lowered its demand forecast for 2021 due mostly to continued sluggishness in aviation fuel demand.
A mild winter has interrupted a recovery in North American natural gas prices after a run-up motivated by curtailed capital expenditures, upstream activity and production. After an initial meltdown, with cargo cancellations and dramatic price reversal, LNG markets have made a remarkable comeback, and the spread between Asia and Henry Hub has reached a level we haven’t seen in almost three years. It may be the case that interruption in FIDs has brought us to the cusp of a balance that can support reliable returns.
EY Price Point: global oil and gas market outlook, Q2 April 2021EY
The theme for this quarter is governed. Apparent market balance at prices that could be sustainable is the product of calculated choices by market leaders and the cooperation of those who follow them. Economics played their customary role as well, with capital scarcity in North America taking about 2 million barrels per day out of the market, about half of the remaining gap in demand. While inventories are close to their pre-COVID-19 levels, there is still uncertainty. The resolution of the pandemic is in sight, but timing is unclear. Vaccine distribution in the US is having an impact but Europe is struggling to contain a third wave of infections. The taps have opened on economic stimulus, but it remains to be seen if policymakers have done enough or if they have overshot the mark.
The shape of the crude oil forward curve has fundamentally changed since the end of the last quarter. In late December of last year, the Brent forward curve was gradually increasing while today, the curve is backwardated. This is a clear sign that the market sees a short-term dynamic that is disconnected from the medium-to-long-term fundamentals. The lasting impact of the COVID-19 pandemic remains to be seen. While many have opined that COVID-19 marks a turning point in energy transition, the IEA recently released a five-year forecast of oil demand that shows steady growth, albeit at rates that are below historical expectations.
Gas markets are a paradox. At the Henry Hub and at LNG destinations, demand grows, investment lags and prices will occasionally attract attention. Traders, so far though, are unconvinced and futures prices don’t indicate imminent scarcity at any link in the value chain.
EY Price Point: global oil and gas market outlook (Q4, October 2020)EY
Oil and gas prices have recovered steadily from their lows and are relatively stable, but that stability is supported by the combination of purposeful withholding of production by oil-producing countries and economic stress on upstream independents. Oil prices closed the quarter roughly where they started it, while refining spreads were down slightly. LNG spreads were substantially higher at the end of Q3 than they were at the beginning of the quarter but are still roughly half of what is generally thought of as sustainable.
Going forward, the market will be looking closely at how the economy and demand respond to new developments with respect to a potential COVID-19 vaccine and the US election.
EY Price Point: global oil and gas market outlookEY
The theme for this quarter is resilience. A 6% supply outage in September was unable to push Brent prices above US$70/bbl. Demand concerns, driven by slowing world economic growth and the need to decarbonize, quickly retook the stage despite output from Venezuela and Iran being hindered by political turmoil and international sanctions.
Technology enhancements are a significant contributor to the market’s sanguine attitude towards supply disruption. Operators are able to produce greater volumes, quicker, and at a lower cost. That trend can only continue.
LNG markets continue to mature as traders play an increasing role in directing cargoes and setting prices. The pipeline for LNG projects remains healthy as market participants aim to establish a position in a market that is seen as the best opportunity for growth in oil and gas.
EY Price Point: global oil and gas market outlookEY
As we close the second quarter of 2020, in most of Europe and Asia, the first (and hopefully last) wave of the COVID-19 crisis appears to be abating. In the parts of the US where the virus hit early, the profile has largely matched Europe’s, while in other parts, the urge to reopen businesses has trumped the desire to contain the virus and uncertainty looms. In the developing world, the crisis has just begun, but without the economic headroom and resources necessary to contain it. As the crisis unfolded, the effect on oil and gas demand has been predictable but difficult to gauge precisely and therefore difficult to manage.
Oil prices have crept up steadily as production has been curtailed through coordinated action (OPEC+) and because of economic reality (unconventional oil in North America). That trend has been subject to momentary spasms when bad news hit the market. It would be understandable if traders were nervous, and it seems that they are. Although nowhere near where it was at the peak of the crisis, option implied volatility is still at historically high levels. Gas markets, without the benefit of coordination on the supply side, continue to deal with the market implications of storage at or near capacity. Interfuel competition in power generation has always provided something of a floor, but those lows have been, and will continue to be, tested.
EY Price Point: global oil and gas market outlook, Q319EY
The theme for this quarter is consistency: in the significant trends impacting prices, at least. The forces that impacted oil prices in the second quarter were the same as those that have impacted prices quarter after quarter for the past several years. Surging North American production counterbalanced by OPEC+ production cuts has kept prices in a fairly narrow range. The market has become remarkably resilient. For some time now, long-dated oil futures have traded at a price very close to the market’s view of the break-even price of unconventional oil in North America.
EY Price Point: Global Oil and Gas Market Outlook - Q3EY
The oil and gas sector is constantly changing. Increasingly uncertain energy policies, geopolitical complexities, cost management and climate change all present significant challenges. EY’s Global Oil & Gas Sector supports a global network of more than 10,000 oil and gas professionals with extensive experience in providing assurance, tax, transaction and advisory services across the upstream, midstream, downstream and oil field sub-sectors.
EY Price Point: global oil and gas market outlookEY
We enter 2021 on a note of cautious optimism for global health, the world economy, and the oil and gas markets. The first weeks of December brought approval in the US and the UK of the first of several COVID-19 vaccines. The speed with which vaccine development occurred is unprecedented, but certainly welcome. In the weeks following the early November announcement of 90+% effectiveness by the manufacturer of the first approved vaccine, the price of WTI crude oil increased by US$10/bbl to US$48/bbl, the highest level since early March. Sustainability hasn’t returned yet, and whatever time it takes to get the world to normal, it will take even longer for normalization within the oil and gas markets. Inventories remain at historically high levels and, optimistically, it will take until April before inventory returns to levels observed in the preceding five years. That’s an estimate, and there has obviously been some difficulty properly calibrating the expectations of how balance will return and how long it will take. In late November, OPEC met to adjust its output plans because of the anemic rebound in demand. In mid-December, the IEA lowered its demand forecast for 2021 due mostly to continued sluggishness in aviation fuel demand.
A mild winter has interrupted a recovery in North American natural gas prices after a run-up motivated by curtailed capital expenditures, upstream activity and production. After an initial meltdown, with cargo cancellations and dramatic price reversal, LNG markets have made a remarkable comeback, and the spread between Asia and Henry Hub has reached a level we haven’t seen in almost three years. It may be the case that interruption in FIDs has brought us to the cusp of a balance that can support reliable returns.
EY Price Point: global oil and gas market outlook, Q2 April 2021EY
The theme for this quarter is governed. Apparent market balance at prices that could be sustainable is the product of calculated choices by market leaders and the cooperation of those who follow them. Economics played their customary role as well, with capital scarcity in North America taking about 2 million barrels per day out of the market, about half of the remaining gap in demand. While inventories are close to their pre-COVID-19 levels, there is still uncertainty. The resolution of the pandemic is in sight, but timing is unclear. Vaccine distribution in the US is having an impact but Europe is struggling to contain a third wave of infections. The taps have opened on economic stimulus, but it remains to be seen if policymakers have done enough or if they have overshot the mark.
The shape of the crude oil forward curve has fundamentally changed since the end of the last quarter. In late December of last year, the Brent forward curve was gradually increasing while today, the curve is backwardated. This is a clear sign that the market sees a short-term dynamic that is disconnected from the medium-to-long-term fundamentals. The lasting impact of the COVID-19 pandemic remains to be seen. While many have opined that COVID-19 marks a turning point in energy transition, the IEA recently released a five-year forecast of oil demand that shows steady growth, albeit at rates that are below historical expectations.
Gas markets are a paradox. At the Henry Hub and at LNG destinations, demand grows, investment lags and prices will occasionally attract attention. Traders, so far though, are unconvinced and futures prices don’t indicate imminent scarcity at any link in the value chain.
EY Price Point: global oil and gas market outlook (Q4, October 2020)EY
Oil and gas prices have recovered steadily from their lows and are relatively stable, but that stability is supported by the combination of purposeful withholding of production by oil-producing countries and economic stress on upstream independents. Oil prices closed the quarter roughly where they started it, while refining spreads were down slightly. LNG spreads were substantially higher at the end of Q3 than they were at the beginning of the quarter but are still roughly half of what is generally thought of as sustainable.
Going forward, the market will be looking closely at how the economy and demand respond to new developments with respect to a potential COVID-19 vaccine and the US election.
EY Price Point: global oil and gas market outlookEY
The theme for this quarter is resilience. A 6% supply outage in September was unable to push Brent prices above US$70/bbl. Demand concerns, driven by slowing world economic growth and the need to decarbonize, quickly retook the stage despite output from Venezuela and Iran being hindered by political turmoil and international sanctions.
Technology enhancements are a significant contributor to the market’s sanguine attitude towards supply disruption. Operators are able to produce greater volumes, quicker, and at a lower cost. That trend can only continue.
LNG markets continue to mature as traders play an increasing role in directing cargoes and setting prices. The pipeline for LNG projects remains healthy as market participants aim to establish a position in a market that is seen as the best opportunity for growth in oil and gas.
EY Price Point: global oil and gas market outlookEY
As we close the second quarter of 2020, in most of Europe and Asia, the first (and hopefully last) wave of the COVID-19 crisis appears to be abating. In the parts of the US where the virus hit early, the profile has largely matched Europe’s, while in other parts, the urge to reopen businesses has trumped the desire to contain the virus and uncertainty looms. In the developing world, the crisis has just begun, but without the economic headroom and resources necessary to contain it. As the crisis unfolded, the effect on oil and gas demand has been predictable but difficult to gauge precisely and therefore difficult to manage.
Oil prices have crept up steadily as production has been curtailed through coordinated action (OPEC+) and because of economic reality (unconventional oil in North America). That trend has been subject to momentary spasms when bad news hit the market. It would be understandable if traders were nervous, and it seems that they are. Although nowhere near where it was at the peak of the crisis, option implied volatility is still at historically high levels. Gas markets, without the benefit of coordination on the supply side, continue to deal with the market implications of storage at or near capacity. Interfuel competition in power generation has always provided something of a floor, but those lows have been, and will continue to be, tested.
EY Price Point: global oil and gas market outlook, Q2, April 2020EY
The first quarter of this year has seen some extraordinary events. As if chronic oversupply, prices stuck below sustainable levels, the looming energy transition, and investor pressure to decarbonize weren’t enough, our industry now faces a dramatic, but hopefully temporary, downturn in demand as a result of the ongoing COVID-19 outbreak.
The theme for this quarter is inorganic. Although prices climbed in the fourth quarter as the balance of supply and demand tilted in favour of demand, OPEC + restraint was fundamental.
The market is conscious of downside pressures that loom. OPEC + has announced production cuts through to the end of the first quarter. Beyond the first quarter, there is a risk that OPEC + grows weary of supporting the market and reverts to a strategy of growing production, protecting market share and placing pressure on the economics of unconventional producers. Production growth in Brazil and Norway has the potential to consume a significant portion of demand growth expected in 2020. Whether, or the extent to which, US shale output growth continues despite escalating financial strain across the E&P sector will be key in determining whether OPEC + cuts will be sufficient to balance the market in 2020.
In the longer-term, focus remains on the energy mix of the future and its impact on the demand for petroleum products. A number of significant uncertainties remain, including electric vehicle (EV) penetration. EY’s ‘Fueling the Future’ analyzes the outlook under four distinct scenarios. The analysis shows that an inflection point in EV penetration is required by 2022 if the terms of the Paris Accord are to be met.
EY Price Point: global oil and gas market outlookEY
As the last quarter of the second pandemic year draws to a close, we continue to see heightened contrast
between the medical and economic points of view. While COVID-19 cases are close to their all-time highs, so
are equity prices, and a leading investment bank declared (on 2 December, 2021 after the Omicron outbreak in South Africa) that it was “optimistic about the possibility of a vibrant 2022.” When news of the variant hit in
late November, the markets were rocked by the prospect of yet another round of local mobility restrictions and
an interrupted return to normal international travel patterns, on top of the Biden Administration’s announced
release of 50 million barrels of crude from the US Strategic Petroleum Reserve. So far though, with OPEC
standing by its planned gradual return to normal production, oil prices have stabilized, albeit below where they
were in mid-November. Henry Hub prices, always at the mercy of the weather, responded predictably to a
warmer-than-normal early winter in the US, falling from US$6.60/MMBtu in early October to below
US$4.00/MMBtu by mid-December. In Europe and Asia, following a short reprieve at the start of the quarter,
piped natural gas prices have spiked again on concerns triggered by Russian troop buildups on the Ukraine
border and uncertainties surrounding the Nordstream 2 pipeline. Looking forward, OPEC and the U.S. Energy
Information Administration (EIA) in their last forecasts of the year both projected that 2022 oil demand would
be above what we saw in 2019. Although time will tell if those forecasts are realized and other events could
intervene, the response to new virus outbreaks is well-practiced and the trade-off between public health and
economic reality has tipped toward a cautiously optimistic view.
EY Price Point: global oil and gas market outlook, Q2 | April 2022EY
The theme for this quarter is rearrangement. The loss, or potential loss, of Russian oil and gas supplies is forcing producers, refiners and traders to rethink the flow of crude oil and refined products from the wellhead to the gas pump in light of sanctions, potential sanctions and the risk of reputational damage. Countries, companies and consumers will all be searching for ways to adapt, and the outcome of the race to bring alternatives to market could alter the global energy landscape for years to come.
It is likely crude oil and LNG prices will remain elevated for some time. The process of diverting Russian oil through countries unwilling to sanction it will take time and there is little indication OPEC members are willing (or able) to increase production to make up for the loss of Russian crude. Spare capacity sat at 3.7 mbpd at the end of 2021, just above where it was in January 2020. Currently, sanctioned Venezuelan and Iranian production (about 3 mbpd below their peak) could fill the gap, but political and commercial obstacles remain. At today’s prices, US shale production is attractive, but the fastest the industry has been able to grow is between 1mbpd and 2mbpd per year. The LNG infrastructure was already stretched before the war in Ukraine and there is little prosect of finding new supplies soon.
As the largest buyer of Russian energy, Europe will be the epicenter. There is a deeply embedded bias there in favor for renewable energy, and the current crisis is certain to result in an all-out effort to accelerate the build-out of wind and solar power. The capacity to add new green energy is limited though by the project pipeline and supply chains for solar panels and wind turbines, and it is likely that much of the shortfall will be made up with the new LNG infrastructure.
EY Price Point: global oil and gas market outlookEY
The theme for this quarter is reprieve. Crude prices rose steadily throughout 1Q19 as OPEC+ reigned in production to counteract the impact of North American production growth. What lies ahead is uncertain, but downward pressures loom over the marketplace.
Quarterly analyst themes of oil and gas earningsEY
As it almost always is, oil and gas profitability was driven by crude oil, refined product and natural gas market conditions in Q2 2019. Oil prices seesawed, rising steadily during the first half of the quarter, falling during most of the second half of the quarter, before rising again at the end.
EY Price Point: Global oil and gas market outlook Q4 2018EY
A range of upside forces have shifted market sentiment and some parties are talking of $90, or even $100/bbl oil in the short to medium term. Our insights on the outlook for the global oil price in Q4 2018.
Q2 – Analyst Themes of Quarterly Oil & Gas EarningsEY
Most companies reported strong earnings growth in the second quarter, but investors were disappointed. Expectations had risen in line with oil prices and profits, but cash flow generation of some companies fell short of consensus estimates.
Analyst themes of quarterly oil and gas earnings Q4 2018EY
The oil and gas industry started the fourth quarter of 2018 with high hopes. Oil prices had risen in the last half of the third quarter and indicators were pointing upward. As is often the case, events took over and oil prices erased all the gains made since the beginning of 2017.
EY Price Point: Global oil and gas market outlook - 1Q19EY
The theme for this quarter is reversal. Following a period of sustained growth throughout the first 10 months of 2018, the oil price recovery began to reverse in the fourth quarter.
Mercer Capital's Value Focus: Energy Industry | Q1 2020 | Region Focus: Eagle...Mercer Capital
Mercer Capital's Energy Industry newsletter provides perspective on valuation issues. Each newsletter also typically includes macroeconomic trends, industry trends, and guideline public company metrics.
EY Analyst themes of quarterly oil & gas earnings: 3Q18EY
Oil & gas companies are reporting stronger cash flows and improved bottom lines. Analysts are focused on how that cash will be put to work. Do they return cash to shareholders or do they expand portfolios, possibly taking advantage of stronger market indicators? Macro factors and timing are likely to play a greater role as markets reset.
Mercer Capital's Value Focus: Energy Industry | Q2 2019 | Region: Permian BasinMercer Capital
Mercer Capital's Energy Industry newsletter provides perspective on valuation issues. Each newsletter also typically includes macroeconomic trends, industry trends, and guideline public company metrics.
The theme for this quarter is apprehension. In September, the US Federal Reserve announced a third 75 basis point increase in the federal funds rate. In the aftermath, the two-year treasury rate reached the highest level since before the 2008 financial crisis and the spread between two and ten-year rates went below negative 50basis points for the first time since the early eighties. Equity markets have begun to price in the likelihood of a recession and, if history is any indication, the impact on oil markets could be profound.
EY Price Point: global oil and gas market outlook, Q2, April 2020EY
The first quarter of this year has seen some extraordinary events. As if chronic oversupply, prices stuck below sustainable levels, the looming energy transition, and investor pressure to decarbonize weren’t enough, our industry now faces a dramatic, but hopefully temporary, downturn in demand as a result of the ongoing COVID-19 outbreak.
The theme for this quarter is inorganic. Although prices climbed in the fourth quarter as the balance of supply and demand tilted in favour of demand, OPEC + restraint was fundamental.
The market is conscious of downside pressures that loom. OPEC + has announced production cuts through to the end of the first quarter. Beyond the first quarter, there is a risk that OPEC + grows weary of supporting the market and reverts to a strategy of growing production, protecting market share and placing pressure on the economics of unconventional producers. Production growth in Brazil and Norway has the potential to consume a significant portion of demand growth expected in 2020. Whether, or the extent to which, US shale output growth continues despite escalating financial strain across the E&P sector will be key in determining whether OPEC + cuts will be sufficient to balance the market in 2020.
In the longer-term, focus remains on the energy mix of the future and its impact on the demand for petroleum products. A number of significant uncertainties remain, including electric vehicle (EV) penetration. EY’s ‘Fueling the Future’ analyzes the outlook under four distinct scenarios. The analysis shows that an inflection point in EV penetration is required by 2022 if the terms of the Paris Accord are to be met.
EY Price Point: global oil and gas market outlookEY
As the last quarter of the second pandemic year draws to a close, we continue to see heightened contrast
between the medical and economic points of view. While COVID-19 cases are close to their all-time highs, so
are equity prices, and a leading investment bank declared (on 2 December, 2021 after the Omicron outbreak in South Africa) that it was “optimistic about the possibility of a vibrant 2022.” When news of the variant hit in
late November, the markets were rocked by the prospect of yet another round of local mobility restrictions and
an interrupted return to normal international travel patterns, on top of the Biden Administration’s announced
release of 50 million barrels of crude from the US Strategic Petroleum Reserve. So far though, with OPEC
standing by its planned gradual return to normal production, oil prices have stabilized, albeit below where they
were in mid-November. Henry Hub prices, always at the mercy of the weather, responded predictably to a
warmer-than-normal early winter in the US, falling from US$6.60/MMBtu in early October to below
US$4.00/MMBtu by mid-December. In Europe and Asia, following a short reprieve at the start of the quarter,
piped natural gas prices have spiked again on concerns triggered by Russian troop buildups on the Ukraine
border and uncertainties surrounding the Nordstream 2 pipeline. Looking forward, OPEC and the U.S. Energy
Information Administration (EIA) in their last forecasts of the year both projected that 2022 oil demand would
be above what we saw in 2019. Although time will tell if those forecasts are realized and other events could
intervene, the response to new virus outbreaks is well-practiced and the trade-off between public health and
economic reality has tipped toward a cautiously optimistic view.
EY Price Point: global oil and gas market outlook, Q2 | April 2022EY
The theme for this quarter is rearrangement. The loss, or potential loss, of Russian oil and gas supplies is forcing producers, refiners and traders to rethink the flow of crude oil and refined products from the wellhead to the gas pump in light of sanctions, potential sanctions and the risk of reputational damage. Countries, companies and consumers will all be searching for ways to adapt, and the outcome of the race to bring alternatives to market could alter the global energy landscape for years to come.
It is likely crude oil and LNG prices will remain elevated for some time. The process of diverting Russian oil through countries unwilling to sanction it will take time and there is little indication OPEC members are willing (or able) to increase production to make up for the loss of Russian crude. Spare capacity sat at 3.7 mbpd at the end of 2021, just above where it was in January 2020. Currently, sanctioned Venezuelan and Iranian production (about 3 mbpd below their peak) could fill the gap, but political and commercial obstacles remain. At today’s prices, US shale production is attractive, but the fastest the industry has been able to grow is between 1mbpd and 2mbpd per year. The LNG infrastructure was already stretched before the war in Ukraine and there is little prosect of finding new supplies soon.
As the largest buyer of Russian energy, Europe will be the epicenter. There is a deeply embedded bias there in favor for renewable energy, and the current crisis is certain to result in an all-out effort to accelerate the build-out of wind and solar power. The capacity to add new green energy is limited though by the project pipeline and supply chains for solar panels and wind turbines, and it is likely that much of the shortfall will be made up with the new LNG infrastructure.
EY Price Point: global oil and gas market outlookEY
The theme for this quarter is reprieve. Crude prices rose steadily throughout 1Q19 as OPEC+ reigned in production to counteract the impact of North American production growth. What lies ahead is uncertain, but downward pressures loom over the marketplace.
Quarterly analyst themes of oil and gas earningsEY
As it almost always is, oil and gas profitability was driven by crude oil, refined product and natural gas market conditions in Q2 2019. Oil prices seesawed, rising steadily during the first half of the quarter, falling during most of the second half of the quarter, before rising again at the end.
EY Price Point: Global oil and gas market outlook Q4 2018EY
A range of upside forces have shifted market sentiment and some parties are talking of $90, or even $100/bbl oil in the short to medium term. Our insights on the outlook for the global oil price in Q4 2018.
Q2 – Analyst Themes of Quarterly Oil & Gas EarningsEY
Most companies reported strong earnings growth in the second quarter, but investors were disappointed. Expectations had risen in line with oil prices and profits, but cash flow generation of some companies fell short of consensus estimates.
Analyst themes of quarterly oil and gas earnings Q4 2018EY
The oil and gas industry started the fourth quarter of 2018 with high hopes. Oil prices had risen in the last half of the third quarter and indicators were pointing upward. As is often the case, events took over and oil prices erased all the gains made since the beginning of 2017.
EY Price Point: Global oil and gas market outlook - 1Q19EY
The theme for this quarter is reversal. Following a period of sustained growth throughout the first 10 months of 2018, the oil price recovery began to reverse in the fourth quarter.
Mercer Capital's Value Focus: Energy Industry | Q1 2020 | Region Focus: Eagle...Mercer Capital
Mercer Capital's Energy Industry newsletter provides perspective on valuation issues. Each newsletter also typically includes macroeconomic trends, industry trends, and guideline public company metrics.
EY Analyst themes of quarterly oil & gas earnings: 3Q18EY
Oil & gas companies are reporting stronger cash flows and improved bottom lines. Analysts are focused on how that cash will be put to work. Do they return cash to shareholders or do they expand portfolios, possibly taking advantage of stronger market indicators? Macro factors and timing are likely to play a greater role as markets reset.
Mercer Capital's Value Focus: Energy Industry | Q2 2019 | Region: Permian BasinMercer Capital
Mercer Capital's Energy Industry newsletter provides perspective on valuation issues. Each newsletter also typically includes macroeconomic trends, industry trends, and guideline public company metrics.
The theme for this quarter is apprehension. In September, the US Federal Reserve announced a third 75 basis point increase in the federal funds rate. In the aftermath, the two-year treasury rate reached the highest level since before the 2008 financial crisis and the spread between two and ten-year rates went below negative 50basis points for the first time since the early eighties. Equity markets have begun to price in the likelihood of a recession and, if history is any indication, the impact on oil markets could be profound.
The theme for this quarter is momentum meets uncertainty. The upward trend in crude oil, natural gas, LNG and refined product prices that began in Q1 continued into Q2. Crude oil markets began the quarter just below $100/bbl and have closed below that level on only two days since late April. As we begin Q3, there are increasing concerns about the health of the global economy and how that might affect oil and gas demand.
The Saturday Economist Oil Market Update 2015John Ashcroft
What is pushing oil prices lower? What’s the difference between Brent Crude or West Texas Intermediate? Will prices stay low and what are the prospects for oil demand growth? Who are the winners and losers? What is the impact of lower oil prices on the economy? Are lower oil prices good for growth? What does the falling price mean for the consumer? US Oils rigs go up as the oil prices rise, so is the real challenge, Sheiks versus Shale or a Western squeeze on Russian resources?
Check out our oil market update to understand just what is happening in the oil Market
VF: Exploration and Production: Q4 2018 | Region Focus: AppalachiaMercer Capital
Mercer Capital's Energy Industry newsletter provides perspective on valuation issues. Each newsletter also typically includes macroeconomic trends, industry trends, and guideline public company metrics.
The sustainability of trading profits has always been questioned. Volatility has returned to pre-crisis levels and, absent more disruption, the size of the opportunity will shrink.
See this week's edition of EY Price Point
This is the SPRE presentation from four experts on their 2017 oil price outlooks at the October 2016 full-house Society of Petroleum Resources Economists' meeting in Houston. They included Carl Larry (Frost & Sullivan), Raoul LeBlanc (IHS), Afo Ogunnaike (Wood Mackenzie) and Tony Starkey (S&P Global, Platts). The meeting was opened by JC Rovillain (Enhanced Value Recovery) and the panel discussion was moderated by Javan Meinwald (Marketing Upstream). Check out the YouTube video for the compete presentations and the panel discussion. https://www.youtube.com/channel/UC1sXSv6-jXlbBCQwtcB3kUA
Mercer Capital's Value Focus: Energy Industry | Q3 2021 | Segment: BakkenMercer Capital
Mercer Capital's Energy Industry newsletter provides perspective on valuation issues. Each newsletter also typically includes a macroeconomic trends, industry trends, and guideline public company metrics.
The OPEC Reference Basket averaged $42.68/b in July, representing the first decline in five months. Lower-than-expected demand, high refined product stocks, and rising crude supply were the factors behind the $3.16 drop. ICE Brent ended down $3.39 at $46.53/b, while Nymex WTI fell $4.05 to $44.80/b. Speculators cut long positions further this month in all markets. The ICE Brent-WTI spread widened to $1.75/b in Brent’s favour during July.
Quarterly analyst themes of oil and gas earnings, Q1 2022EY
Financial questions continued to attract the most attention of the analyst community, with major focus on how companies will respond to the war in Ukraine, elevated commodity prices and improved cash flows. Strategic questions focused on how the changing geopolitical environment will affect capital allocation in the short and long term. Operationally, all eyes were on the capacity of companies to step up asset utilization and bring new projects to market quickly. Explore the latest EY quarterly analysts themes.
Zahl der Gewinnwarnungen steigt auf RekordniveauEY
Immer mehr deutsche börsennotierte Unternehmen müssen ihre eigenen Umsatz- oder Gewinnprognosen nach unten korrigieren. Im ersten Quartal stieg die Zahl der Prognosekorrekturen auf ein neues Rekordniveau: Insgesamt 77 Gewinn- oder Umsatzwarnungen wurden registriert.
Die Corona-Krise trifft auch die Versicherungsbranche mit voller Wucht. Die Versicherer rechnen mit weniger Neugeschäft. Jeder Fünfte mit Personalabbau und Prämienerhöhungen.
Liquidity for advanced manufacturing and automotive sectors in the face of Co...EY
With a global economy in crisis due to Covid-19 our liquidity and cash management deck for advanced manufacturing and
mobility companies looks at how these companies should best respond.
IBOR transition: Opportunities and challenges for the asset management industryEY
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Fusionen und Übernahmen dürften nach der Krise zunehmenEY
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2. Page 2 Q2 | April 2018 Global oil and gas market outlookPage 2
In the first quarter, oil markets converged to a sustainable equilibrium. Demand is
growing steadily whilst production economics are predictable and in control of pricing.
Short of the threat of political chaos in the Middle East, there aren’t foreseeable market
developments with enough weight to move the markets significantly up or down.
Profits are acceptable, if not spectacular and there’s enough capital in the system to
keep production growing in North America and enough discipline to keep it stable in
OPEC.
Gary Donald Andy Brogan
EY Global Oil & Gas EY Global Oil & Gas
Assurance Leader Transaction Advisory Services Leader
gdonald@uk.ey.com abrogan@uk.ey.com
Q2 overview
3. Page 3 Q2 | April 2018 Global oil and gas market outlookPage 3
The theme for this quarter is sustainability. Are geopolitical risks enough to drive
prices to the next level, or will they hover indefinitely? The ongoing meltdown in
Venezuela, the escalation of conflict in the Middle East and potential sanctions
against Iran all loom.
?
► Are OPEC production cuts sustainable in the long term, given
fiscal pressures?
► How will capital discipline in North America impact production
growth?
► Is the Chinese government’s push to get factories and homes
off coal and onto natural gas sustainable, and will the LNG
infrastructure be enough to meet that demand?
Q2 theme
4. Page 4 Q2 | April 2018 Global oil and gas market outlookPage 4
Latin
America
and Asia
on the
margin?
Latin America and APAC have had the most
predictable response to falling prices and
may hold the key to the market’s future. The
price at which capital, and therefore
production, returns to those fields will provide
a critical signal.
Most market forecasts assume continued
growth in North American shale oil
production (about 1 million barrels a day).
Pressure to return capital to investors will
continue to constrain spending. Increased
operating cash from higher prices helps, but
it’s unclear if that will be enough.
1 million
new
barrels per
day from
shale oil
production
Trends
In the aggregate, OPEC production
discipline continues and the market seems
to believe in that trend. Political turmoil in
Venezuela has supported OPEC production
cut compliance. Fiscal pressures will put
increasing pressure on supply in the longer
term.
OPEC
production
in the
longer
term?
Low oil prices and a thriving world economy
have worked in favor of robust demand. IEA
estimates demand growth of 1.5 mbpd in
2018. US import sanctions and the
predictable Chinese response may have a
significant effect on economic growth and oil
demand.
Trade wars
and
demand?
5. Page 5 Q2 | April 2018 Global oil and gas market outlookPage 5
Market fundamentals
► Brent and WTI see-sawed in a narrow range throughout Q1 2018.
Prices increased on reports of OPEC and Russia production cut
compliance and robust growth in demand. Prices remain constrained by
continued growth in US crude oil output.
► Average Brent and WTI prices in Q1 2018 were higher than Q4 2017 by
8.7% and 13.6%, respectively. The Brent-WTI spread fell from highs of
$8/bbl. in Q4 2017 to around $4/bbl. during the recent quarter.
Prices see-sawed in a narrow range
55
60
65
70
75
1/1/2018 2/1/2018 3/1/2018
$/bbl.
WTI BrentSource: EIA
01/04/2018
(1.50)
(1.00)
(0.50)
-
0.50
1.00
millionbarrelsperday
Movement to
Oversupply
Movement to
Undersupply
Source: IEA
Uneven supply response
► Year over year, the market shifted from being slightly oversupplied to being
slightly undersupplied.
► The market was largely subject to the same factors as last quarter. Demand
grew at a healthy rate, OPEC and Russia held production steady, North
American output soared and natural decline and capital scarcity impacted
output elsewhere.
► Total OECD stocks are being drawn at an accelerating rate. In the fourth
quarter of 2017, industry inventories of crude and products fell by 1.37 mbpd,
compared to a draw of 0.53 mbpd and 0.16 mbpd in Q3 and Q2, respectively.
6. Page 6 Q2 | April 2018 Global oil and gas market outlookPage 6
Market fundamentals
► OPEC production cut compliance varied among members. In total, OPEC
output held steady.
► More than 100% of OPEC’s output reductions are accounted for by
Venezuela. This decline has everything to do with political turmoil and
nothing to do with voluntary production restraint. The situation in
Venezuela seems to deteriorate daily and there is no indication of where
the bottom is or what the end game looks like.
► Russia, Saudi Arabia, Kuwait, Iran and Iraq held production steady while
Nigeria and Libya increased production.
► Absent of supply response outside OPEC and North America, the global
market would continue to be oversupplied by about a half million barrels per
day. In a sense, Asia and Latin America are on the margin.
► The pattern was consistent across the board. Reduction in capital
expenditure continues to take its toll on field productivity.
► The future is unclear. As prices continue to stabilize, mature field economics
will improve which could see the return of capital to fuel the next phase of
production growth in mature regions.
Mature resources down across the boardOPEC compliance supported by Venezuela chaos
-0.60
-0.50
-0.40
-0.30
-0.20
-0.10
0.00
0.10
0.20
0.30
0.40
millionbarrelsperday
Source: IEA
-0.14
-0.12
-0.10
-0.08
-0.06
-0.04
-0.02
0.00
0.02
millionbarrelsperday
Source: IEA
7. Page 7 Q2 | April 2018 Global oil and gas market outlookPage 7
Market fundamentals
► The spread between Henry Hub, Asian LNG and UK NBP prices should
narrow during the second quarter. China has limited gas storage capacity
and is not able to take advantage of lower summer prices to build stocks.
Supply will be bolstered, with an additional 20mtpa of LNG capacity
scheduled to come online by mid-2018.
► The short-term outlook for US natural gas prices is consistent with history,
being stable. US gas production is forecast to reach record levels in 2018
and there is no evidence of LNG exports or domestic demand putting
upward pressure on markets.
► Growth in North American shale production has consistently required capital
spending well in excess of operating cash, even in recent years with
depressed service pricing and below-par service company return.
► North American operators have begun to feel pressure to rein in spending
and return cash to shareholders. Higher oil prices will drive operating cash
higher in 2018, but no one expects a burst of new capital spending.
► Service capacity is expected to tighten, which may put some pressure on
costs, spending, activity levels and (potentially) production.
Gas price spreads expected to narrow on ample supplies North American capital spending stable
0
2
4
6
8
10
12
14
16
18
20
Jan-14
Apr-14
Jul-14
Oct-14
Jan-15
Apr-15
Jul-15
Oct-15
Jan-16
Apr-16
Jul-16
Oct-16
Jan-17
Apr-17
Jul-17
Oct-17
Jan-18
US$/MMBtu
Japan Spot LNG Henry Hub
Natural Gas Europe UK NBP
$-
$10,000
$20,000
$30,000
$40,000
$50,000
2017 2018 (est)
MillionUS
Capital spending - North American Operator sample
Operating Cash Capex
Source: Thomson Reuters Datastream, World Bank and Japan’s Ministry of Economy,
Trade and Industry
Source: Capital IQ
8. Page 8 Q2 | April 2018 Global oil and gas market outlookPage 8
Brent and WTI oil price outlook: brokers vs. consultants
Brent:
Brokers’ and consultants’ price estimates
ranges and averages
WTI:
Brokers’ and consultants’ price estimates ranges and
averages
For both crude benchmarks, the
broader sample of banks/brokers
predict on average slightly higher oil
prices in 2018-2019, but lower oil
prices in the mid term than the
smaller sample of consultants.
Banks/brokers range is wider due to the
presence of several outlier data points.
Consultants focus primarily on the
analysis of a long term sustainable oil
price while the banks/brokers tend to
provide their view based on the current
market and technical analysis.
Banks/brokers provide on average an
almost flat Brent and WTI oil price
forecasts at around $65/bbl. and
$60/bbl.
Consultants’ forecasts result in
averages of $75.6/bbl. and $72.1/bbl.
vs. banks’/brokers’ averages of
$62.9/bbl. and $60.1/bbl. in 2022 for
Brent and WTI, respectively.
Data effective 31 March 2018.
US$62.9 US$75.6 US$60.1 US$72.1Brent:
Average price
forecast by 2022
WTI:
Average price
forecast by 2021
Banks/brokers Consultants Banks/brokers Consultants
Source: Bloomberg, banks’/brokers’ reports, consensus economics, consultants’ website
30
40
50
60
70
80
90
2018 2019 2020 2021 2022
$perbarrel
Bank/Broker range Consultants range
Bank/Broker average Consultants average
30
40
50
60
70
80
90
2018 2019 2020 2021 2022
$perbarrel
Bank/Broker range Consultants range
Bank/Broker average Consultants average
9. Page 9 Q2 | April 2018 Global oil and gas market outlookPage 9
Futures
Oil markets remain in backwardation
with a contrast between near-term
dynamics and long-term production
economics.
Markets appear as settled as they
have been in recent history.
Volatility ended the quarter slightly
higher than it began, at 25 percent,
but less than 2017’s average of 29
percent and well below the 2016
average of 44 percent. Speculative
opportunities are more focused on
geographic and product spreads.
Data effective 31 March 2018.
0
20
40
60
80
100
120
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
$/bbl. WTI Futures
0
10
20
30
40
50
60
70
80
90
2010 2011 2012 2013 2014 2015 2016 2017 2018
CboeCrudeOilETFVolatility
Index
Oil Market Volatility Index
Source: CBOE
10. Page 10 Q2 | April 2018 Global oil and gas market outlookPage 10
Gas price outlook
Henry Hub:
Brokers’ and consultants’ price
estimates ranges and averages
UK NBP:
Brokers’ and consultants’ price
estimates ranges and averages
• For Henry Hub, the bank/broker
view is essentially flat, reflecting
general price inflation and no
increase in real prices. In contrast
consultants’ estimates reflect a
steady upward trend, reflecting a
view on demand growth and
production economics.
• Banks’/brokers’ and consultants’
estimates for UK NBP are scarce
with only 6 and 4 data points
available, respectively.
• Consultants’ and banks’/brokers’
forecasts are almost flat and
largely aligned. When we compare
the consultant view of NBP to
Henry Hub, it reflects a widening
spread between the North
American and European markets
and a bullish view on LNG capacity
tightness and profits on LNG trade.
• Data effective 31 March 2018.
US$3.8 GBP48.5 GBP45.2UK NBP:
Average price
forecast by 2022
Banks/brokers Consultants
Source: Bloomberg, banks’/brokers’ reports, consensus economics, consultants’ website
Banks/brokers Consultants
US$3.3Henry Hub:
Average price
forecast by 2022
2.0
2.5
3.0
3.5
4.0
4.5
5.0
2018 2019 2020 2021 2022
$perMMBtu
Bank/Broker range Consultants range
Bank/Broker average Consultants average
25
30
35
40
45
50
55
60
2018 2019 2020 2021 2022
GBppertherm
Bank/Broker range Consultants range
Bank/Broker average Consultants average
11. Page 11 Q2 | April 2018 Global oil and gas market outlookPage 11
Brent oil price – banks’/brokers’ and consultants’ estimates
Appendix
Bank/Broker 2018 (US$/bbl) 2019 (US$/bbl) 2020 (US$/bbl) 2021 (US$/bbl) 2022 (US$/bbl)
High 73.2 81.0 81.0 80.0 85.0
Average 63.5 63.5 65.3 65.8 62.9
Median 64.5 62.8 65.0 65.0 65.0
Low 56.0 46.7 50.3 52.0 47.0
Source: Bloomberg, Banks’/Brokers’ reports, consensus economics
Source: Consultants’ websites, Oxford Economics, Wood Mackenzie
Consultant 2018 (US$/bbl) 2019 (US$/bbl) 2020 (US$/bbl) 2021 (US$/bbl) 2022 (US$/bbl)
High 66.8 67.0 75.1 85.1 90.7
Average 60.1 61.5 65.3 72.4 75.6
Median 60.8 62.4 64.5 70.2 73.0
Low 52.0 53.0 53.0 66.0 69.0
Data effective 31 March 2018
12. Page 12 Q2 | April 2018 Global oil and gas market outlookPage 12
WTI oil price – banks’/brokers’ and consultants’ estimates
Appendix
Bank/Broker 2018 (US$/bbl) 2019 (US$/bbl) 2020 (US$/bbl) 2021 (US$/bbl) 2022 (US$/bbl)
High 68.3 78.0 78.0 76.5 81.0
Average 59.7 59.5 61.2 61.2 60.1
Median 60.0 59.7 62.0 61.5 61.6
Low 51.3 41.0 48.7 50.0 45.8
Source: Bloomberg, Banks’/brokers’ reports, consensus economics
Source: Consultants’ websites, Oxford Economics, Wood Mackenzie
Consultant 2018 (US$/bbl) 2019 (US$/bbl) 2020 (US$/bbl) 2021 (US$/bbl) 2022 (US$/bbl)
High 60.1 65.0 71.9 81.1 86.7
Average 55.4 57.6 62.2 69.0 72.1
Median 56.8 58.7 61.2 67.9 70.6
Low 49.0 49.0 50.0 61.0 64.0
Data effective 31 March 2018
13. Page 13 Q2 | April 2018 Global oil and gas market outlookPage 13
HH gas price – banks’/brokers’ and consultants’ estimates
Appendix
Bank/broker 2018 (US$/MMBtu) 2019 (US$/MMBtu) 2020 (US$/MMBtu) 2021 (US$/MMBtu) 2022 (US$/MMBtu)
High 3.3 3.5 3.6 3.7 3.8
Average 3.0 3.1 3.1 3.2 3.3
Median 3.0 3.1 3.1 3.2 3.3
Low 2.8 2.7 2.8 2.8 2.9
Source: Bloomberg, Banks’/brokers’ reports, consensus economics
Source: Consultants’ websites, Oxford Economics, Wood Mackenzie
* Wood Mackenzie has reported figures in US$/mcf. We have used conversion ratio of 1.037 for mcf conversion to MMBtu
Consultant 2018 (US$/mmbtu) 2019 (US$/mmbtu) 2020 (US$/mmbtu) 2021 (US$/mmbtu) 2022 (US$/MMBtu)
High 3.3 3.6 4.0 4.1 4.2
Average 3.0 3.2 3.4 3.7 3.8
Median 3.0 3.1 3.3 3.5 3.8
Low 2.9 2.8 2.8 3.4 3.6
Data effective 31 March 2018
14. Page 14 Q2 | April 2018 Global oil and gas market outlookPage 14
NBP gas price – banks’/brokers’ and consultants’ estimates
Appendix
Bank/Broker 2018 (GBP/therm) 2019 (GBP/therm) 2020 (GBP/therm) 2021 (GBP/therm) 2022 (GBP/therm)
High 55.3 55.5 52.0 52.0 55.0
Average 44.3 44.8 44.9 44.5 48.5
Median 45.3 45.3 47.0 44.6 48.5
Low 30.2 33.0 35.1 36.8 42.0
Source: Bloomberg, Banks’/brokers’ reports, consensus economics
Source: Consultants’ websites, Oxford Economics, Wood Mackenzie
*Oxford Economics has reported figures in US$/MMBtu. We have used exchange rate forecast by Oxford Economics from USD to GBP.
** Wood Mackenzie has reported figures in US$/mcf. We have used exchange rate forecast by Wood Mackenzie from USD to GBP and mcf to MMBtu conversion ratio of 1.037
*** GLJ has reported figures in US$/MMBtu. We have used exchange rate forecast by GLJ from USD to GBP.
Consultant 2018 (GBP/therm) 2019 (GBP/therm) 2020 (GBP/therm) 2021 (GBP/therm) 2022 (GBP/therm)
High 46.3 50.0 51.9 53.8 55.0
Average 41.4 40.9 42.3 44.6 45.2
Median 41.4 40.8 43.8 44.9 46.0
Low 36.3 31.9 29.8 34.9 33.5
Data effective 31 March 2018