Enverus Intelligence Research, a part of Enverus, a leading global energy data analytics and SaaS technology company, has released its latest FundamentalEdge report containing its five-year supply, demand, and price outline. The report discusses geopolitical risk and shortfalls from major oil-producing countries that pushed WTI prices above $80/bbl even as the Omicron wave and continued supply chain challenges stifled demand. This quarter’s FundamentalEdge refreshes Enverus Intelligence Research’s near- and midterm outlook on supply, demand, price dynamics, and where we expect bottlenecks to form.
“U.S. supply growth should weigh down both commodity prices through 2022, but the timing for this correction depends on geopolitics for oil and weather for natural gas. The added supply will allow a global build in stockpiles through the first half of the year,” said Farzin Mou, lead author and vice president at Enverus Intelligence Research.
Jen Snyder, co-author, managing director and head of North America Macro Intelligence Research, added, “The strength along the NYMEX gas curve will allow producers to add enough supply to catch up with a 100 Bcf/d market, but the strength does not indicate the potential for an immediately bigger market and stronger prices.”
Key takeaways from the report:
- S. oil and gas production growth accelerates in 2022 above ~900 Mbbl/d and ~4 Bcf/d exit-to-exit. Supply chain headwinds defer some of this growth until 2H22 as the rig count rises modestly, peaking at ~660 in late 1Q22 from ~640 today. For both commodities, we expect this strong U.S. production growth to bring prices down relative to current strip levels, although geopolitical tensions and OPEC outages present upside risk to Brent and WTI. As prices weaken and base declines accelerate, U.S. production growth decelerates in 2023, to ~300 Mbbl/d and ~1 Bcf/d, and rig counts moderate to ~560.
- Robust North American supply growth along with seasonal demand weakening should trigger global crude and product inventories build in 1H22. This build pulls oil prices into the mid-$70s Brent in 1H22. We believe OPEC will manage supply to maintain a ~$70/bbl Brent price floor for the medium term – $5/bbl higher than our previous outlook accounting for inflationary pressures and supply instability. If prices fall below that level for a sustained period, we expect the cartel will manage production to maintain price in the mid-$70s for the medium term.
- The strength in global gas markets firms up medium-term demand for North American gas — facilities will run close to nameplate capacity. However, the lack of FIDs in 2020-21 combined with the long development time for some 2018-19 FIDs mean that North American LNG capacity additions total only 1 Bcf/d over the next two years. This stall in new trains, combined with supply growth in 2022 and stronger oil prices, brings Henry Hub prices down sharply over the next six months, to the mid-$3/MMBtu range, and then to ~$3/MMBtu in 2023-24.
