TPI Economist: Crude Prices Unlikely to Strengthen in 2015
The current downturn in crude oil prices is a response to a market imbalance that was created when overall oil supply from the fracking boom exceeded demand, and the resulting contraction is probably not going to turn out like the “bust” period of the 1980s, concluded economist Karr Ingham, who presented the 2014 Texas Petro Index (TPI) for the Texas Alliance of Energy Producers Monday.
However, the recent energy boom is definitely over, Ingham noted, adding that the energy industry is not likely to enter a period of prolonged expansion for many months.
“It’s not that we may not get some moderate relief from current low prices, but prices will need to rise fairly significantly in order to begin to turn things around, and we should prepare for the possibility that that may not happen in 2015,” Ingham said at a news conference Monday.
The TPI declined to 309.5 in December, down from 312.7 in November and the October peak of 312.9, Ingham observed. From here, the TPI is likely headed for declines through most or all of 2015, and possibly into 2016. It could take as long as 18 to 24 months before energy prices begin to climb significantly higher on a routine basis, he said.
“There is every reason to believe the Texas Petro Index will lose 40 percent of its value, dropping to well below 200 from its peak of 312.9,” Ingham said. “In the 2008 to 2009 contraction, the price decline was deep but short-lived, and the TPI declined by nearly 35 percent. While it is possible the duration of price decline this time around could be short-lived as well, the fundamentals don’t quite suggest that will be the case.”
One of the curious things to come out of the data is that the number of new drilling permits continued to climb through September and October, and did not begin to fall until November, well after the monthly average crude oil price peaked at just over $100/barrel in June 2014, Ingham said.
The Texas rig count peaked at a weekly average of 906 in November 2014, while November’s monthly average was 904.
While the downturn is painful to producers, cycles of expansion and contraction are the norm for the industry, Ingham noted, observing that the market is working “as markets are supposed to,” as supply and demand try to get into equilibrium.
Ingham noted that the current downturn will benefit a number of people outside of the industry.
”Markets actually exist to serve consumers, not producers. The events of recent years, and the current market outcomes driving this downturn, are actually the desired result for energy consumers in America – abundant supply, not established for decades into the future, at prices that are more affordable than ever,” he said.
WHAT DO YOU THINK?
Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.
- Gunvor CEO Sees Russian Refining Capacity Taking Hit from Drone Strikes
- These Factors Helped Brent Oil Price Break Above $85
- Sinopec Engineering Posts Higher Annual Petrochemicals Revenue
- Imperial Pipeline in Winnipeg Goes Offline for Three Months
- Gaz System to Acquire Gas Storage Poland
- Subsea7 Secures Contract to Service Woodside's Trion
- Adnoc Inks Supply Deal for Ruwais LNG Project with Germany's SEFE
- EIA Boosts USA Crude Oil Production Forecasts
- Norway Regulator Blasts Proposal to Halt New Oil and Gas Permits
- Chinese Mega Company Makes Major Oilfield Discovery
- EIA Drops 2024 Henry Hub Gas Price Forecast
- EIA and Standard Chartered Offer Up Latest Oil Price Predictions
- Red Sea Region Sees Another Watershed Incident
- Chevron Oil Project in Kazakhstan to Cost $48.5B
- OPEC Voices Encouragement after IEA Affirms Support for Oil Security
- Biden Govt Bares Strategy for Freight Charging, Hydrogen Fueling Infra
- Rystad Looks at the Buzz Around White Hydrogen
- Ukraine Hits Third Russian Refinery In Escalating Drone Strikes
- VIDEO: Missile Attack Kills Crew Transiting Gulf of Aden
- Norway Regulator Blasts Proposal to Halt New Oil and Gas Permits
- Chinese Mega Company Makes Major Oilfield Discovery
- What Is the Biggest Risk to Offshore Oil and Gas Personnel in 2024?
- Is Peak Oil Demand Close?
- Vessel Sinks in Red Sea After Missile Strike
- JP Morgan, Standard Chartered Reveal Latest Oil Price Forecasts
- Exxon Rights in Stabroek Do Not Apply to Hess Merger with Chevron: Hess
- Rystad Forecasts Net Production of Top Permian Producers in 2024
- Analysts Reveal Latest Oil Price Outlook Following OPEC+ Cut Extension