It's Feb. 22, 2017 and I am not wearing a coat to work! In Chicago for heaven sakes! Do I need to explain any further why natural gas prices got pummeled?! Temperatures that are more in line with spring or summer has save this market from what was a structural shortage. Now because Mother Natures has saved us, it is unclear whether lower natural gas prices will inspire the type of production we will need to meet demand. Yes, we will see more pipelines, but production looks like it will fall below 70bcf a day. We will need more LNG demand and more exports but it might not matter unless we see seasonal weather.
Crude oil prices are backing off a bit ahead of what should be another build in inventory while oil bears are worried about rising shale production, OPEC is not. In fact, the Qatar oil Minister said that OPEC may cut output further to adjust for shale. Still oil prices are on guard for what should be another big increase in crude supply in the U.S. but look for another supply drop in Cushing, Okla.
Market Watch is reporting “Citi sees Brent oil at $70 a barrel by end of 2017. So we are in good company with our long-term outlook. Market watch reports that “Citi lifted its short-term oil forecast for Brent by $5 to $55 a barrel in the first quarter of 2017, and $56 a barrel in the second quarter, an increase of $2, partly because investors are sticking to those bullish bets. Ed Morse, from Citi, said they generally expect Brent to stick to a $60 to $65 a barrel range this year. For U.S. oil prices, Citi analysts expect an average $53-a-barrel in the first quarter, $54 in the second, $57 in the third and $62 by the final quarter of 2017.
But the bank is not alone in the bull camp. They have been targeting $73-a-barrel for U.S. crude and $71-a-barrel for Brent since January. Not only are we seeing historic compliance on OPEC production cuts, we expect demand growth globally will exceed expectations.
We saw last year a generational bottom as the historic cuts in capital expenditure will take its toll on output. Shale will recover, but will fail to replace OPEC cuts in the short term and more traditional energy projects in the long term.