Yergin's Prediction | Russell T. Rudy Energy LLC
According to a recent article in “World Oil”, Pulitzer Prize winning author, Daniel Yergin, thinks oil prices are near a bottom. Yergin, whose book The Prize is considered by many as the definitive history of the oil industry, thinks that falling energy investment will result in lower production. Concurrently, he sees consumption as growing, thereby reducing, and ultimately eliminating, the global crude oil glut. At that point he foresees prices rising.
This view is widely shared, but there are many differing opinions as to timing. Yergin sees U. S. output dropping by 10% over the year ending in April. On the demand side, he anticipates an increase of up to 1.3 million barrels of oil per day in 2016. According to this scenario, global supply and demand will reach equilibrium by late 2016 or 2017. This in turn will support a price recovery to about $60-70 per barrel by the end of the decade. “We are in the bottom part of the cycle and a year from now the market will be looking different. These prices (meaning current ones) are having such a big impact on investment.”
With the crude oil price collapse the industry wrote down asset values by more than $19 billion in a single week last month. Shell posted its worst loss in 16 years and Statoil has cut investment and delayed production projects. This is an industry wide trend which will ultimately compromise production rates. The last time U. S. oil production declined was in 2008. Since then it has almost doubled. While it is finally trending downward, increased efficiencies have slowed the decline.
In the meantime, lower prices will lead to a shakeout in the domestic shale industry as weaker companies are bought or forced to sell assets. Yergin goes on to say “There will be a lot of intense M & A (merger and acquisition) activity because there is so much (capital) available. There is a lot of money in private equity firms and others waiting on the sideline, waiting to come in.”
It appears that Yergin is optimistic that prices will recover, but there could be a great deal of pain between now and then.
To read the article in its entirety, please go to http://www.worldoil.com/news/2015/11/03/yergin-sees-oil-price-near-bottom-as-us-output-set-to-fall .
