The US Energy Information Administration predicts that total world crude oil consumption will close to within 430,000 b/d of production in 2017 (97.42 million b/d vs. 96.99 million b/d). This gap is much smaller than 2016's 710,000 b/d production surplus and the recent high of 1.71 million b/d reached in 2015. The International Energy Agency went one step further in its Dec. 13, 2016, Oil Market Report, noting that if agreed-to Organization of Petroleum Exporting Countries and non-OPEC production cuts are implemented as announced, demand would actually outstrip supply for first-half 2017.
Forecasted price responses, however, remain mixed. As of Dec. 6, 2016, EIA's forecast 2016 West Texas Intermediate average price was $43.07/bbl, increasing to $50.66/bbl for 2017. The World Bank, by contrast, on Oct. 20 pegged average 2016 crude prices at $43/bbl, but saw 2017 prices reaching $55/bbl. Private predictions, meanwhile, are both more bearish and more bullish, with Bank of America Merrill Lynch's forecast of a $61/bbl average Brent price for 2017 leading the bulls.
Translating these oil price predictions into exploration spending, Wood Mackenzie Ltd. forecasts a slight decrease to $37 billion in 2017 from $40 billion in 2016 before steady expansion begins again in 2018. Exploration spending's share of total upstream capital expenditure is also expected to return to growth in 2018, after generally eroding since 2010 and falling sharply in 2015-16. WoodMac forecasts Brent to average $77/bbl in 2019 (OGJ Online, Dec. 9, 2016).
But cause for caution remains, particularly regarding the non-OPEC portion of the production cuts. From the press release: "Azerbaijan, Kingdom of Bahrain, Brunei Darussalam, Equatorial Guinea, Kazakhstan, Malaysia, Mexico, Sultanate of Oman, the Russian Federation, Republic of Sudan, and Republic of South Sudan commit to reduce their respective oil production, voluntarily or through managed decline, in accordance with an accelerated schedule. The combined reduction target was agreed at 558,000 b/d for the aforementioned producers." Neither the absence of a timetable for these cuts nor the fact that at least some would occur through already-accounted-for attrition were explicitly addressed.
EIA predicts January 2017 Permian basin crude oil production will be 3% higher than November 2016 production, reaching a record 2.13 million b/d. It increased its overall US crude production forecast for 2017 to 8.78 million b/d from 8.73 million b/d in the wake of the OPEC-led agreement.
Brazil did not participate in the production-cut discussions and intends to continue to grow its output. Faltering security caused Nigerian production to drop in 2016. The OPEC member is exempt from the announced cuts and increases in 2017 depend on security improvements. But to the degree it can boost production this year, ongoing fiscal difficulties would make it hard-pressed not to do so.
The lighter side
Need to escape? According to FX Research as reported in Variety magazine, a new record total of as many as 500 scripted television shows will be on offer this year (vs. 192 in 2006). Want to really get out? Lonelyplanet.com lists Canada, Colombia, and Finland as the year's top travel destinations, with Bordeaux, Cape Town, and Los Angeles the Top 3 cities. Best values? Nepal, Namibia, and Porto, Portugal.
Yes, of course there's lots of work to be done in 2017. Questions regarding oil prices, US production, cybersecurity, and Middle Eastern stability all loom justifiably large, the more so when their interconnected nature is considered.
But, let us not approach the world as simply a place in which to conduct business. Let's have some fun along the way.
If you just can't pull yourself off the couch and TV won't do the trick, progress in both virtual reality headsets and the platforms supporting them should also be a feature of 2017. Who knows, maybe you'll even be able to stream your stock ticker through them.
Christopher E. Smith | Editor in Chief
Christopher brings 27 years of experience in a variety of oil and gas industry analysis and reporting roles to his work as Editor-in-Chief, specializing for the last 15 of them in midstream and transportation sectors.
