From the October 2013 issue of Futures Magazine • Subscribe!

USA: Energy producer for the world?

Forecasts

“Assuming nothing major happens in the Middle East, WTI should start to head back down,” Garner says. “I don’t think we will get back down to $80, but it is a possibility. We’ve got $10 in the price of crude that has to do with the Middle East situation. Fundamentally we should be around $95-$100, maybe less than that.”

Most analysts agree with Garner. “I don’t think [crude] can go much higher,” Chirichella says. “Maybe we can get to $120. I don’t anticipate any further major supply interruptions and somewhere above the market there is a put option, and that is the [SPR]. If we see the price continue to firm, the U.S. and Europe are going to be aggressive in agreeing to a release from the SPR because the economies of Europe and the U.S. are still relatively fragile.”

Chirichella sets the range in crude for the remainder of 2013 at $90 to $120, with a bias to the low end. 

Flynn adds, “By [year end] if things calm down in the Middle East, prices can drop dramatically. The risks to the downside are peace in the Middle East and [Federal Reserve] tapering. Interest rates are rising, which is bearish for oil.”

The wildcard is Syria, and Chirichella says, “If this whole Syrian thing is still lingering, I do not think the Fed will make a move.”

Sattler calls the top part of the range in crude at $125 to $128 if tensions in the Middle East escalate. On the downside he sees $78 to $82. “Shipping rates are abysmal and if the Eurozone implodes and demand decreases and the U.S. economy falls again, it is possible.”

On the natural gas front, there is not much relief from low prices for producers. “There are no issues from a fundamental point of view that suggest natural gas will surge past $4 before we get to the winter and then it is all about what the winter turns out to be,” Chirichella says. “We are struck in a broad range of $3 to $4 and a narrower range of $3.25 to $3.75.”

Sattler says natural gas could reach a low of $2.70 if we have full storage going into December. On the top side he sees $4.20 with a cooler fourth quarter and if more coal plants retire early.  “Some of these companies are accelerating those retirements by virtue of the lower gas price. If they accelerate those retirements, there would be increased demand for power. A nuclear plant is closing in Wisconsin because gas prices are so cheap.”

Slightly more bullish is Cooper who says natural gas could easily approach the $4 to $4.50 range depending upon weather in the fourth quarter. “The draws that you could see with weather that is not considerably cold could indeed shock people and if you had a cold November/December such as what we had in 2000, the price would be significantly higher than that.”

It is a brave new world in energy markets and U.S. production is the driving force. 

“The U.S. has become a huge exporter of product,” says Flynn.  “We also are producing more oil than we import. Now the logistical problems are with the Brent crude because of declining North Sea production. We are starting to see WTI as a reliable source of energy. Number one, the U.S. is going to be one of the world’s largest oil producers, number two we are going to be one of the biggest oil consumers, number three [the U.S. is] going to be a major importer, and number four, [it is] going to be a major exporter. You are going to have everything going through the United States.”

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