Oil and gas sector observers expect commodity prices to move up amid shifting global demands and fluctuating production volumes, while weather and infrastructure constraints have driven near-term price spikes in constrained areas.
S&P Global Ratings recently highlighted the volatility of the global oil market when it revised its Brent crude price forecast for the second time in less than three months. Initially dropping the outlook from $65 per barrel to $55/bbl in January, on March 20, the analysts raised their forecast for the price of Brent crude oil to $60/bbl this year, due to changes in the world economy and ongoing production cuts from OPEC and Russia.
The production cuts have led to a rally in oil prices, primarily for Brent, which had climbed to $65.06/bbl by March 15, compared with a closing price of $50.57/bbl on Dec. 28, 2018, according to the rating agency. "[I]t appears that production cuts by Russia and OPEC will continue to support oil markets for the foreseeable future."
The analysts, however, do not see oil prices rising uniformly as they left their projection for West Texas Intermediate, or WTI, crude oil for the year unchanged at $50/bbl. "While the price of WTI has also responded positively, it has not rebounded quite as strongly as Brent. This is largely due to expectations about the continuing growth of oil production from the Permian Basin."
Moody's sees an increase in prices on the horizon for gas, as well, albeit over a longer time frame. The rating agency said it expects domestic and international markets for U.S. fuels to catch up with the nation's shale surplus in the coming years.
"We see rising demand as [U.S.] power generation switches to gas from coal, along with LNG exports globally and piped exports to Mexico, as well as demand from a [U.S.] petrochemical renaissance catching up to the abundant and inexpensive natural gas supply in the medium term," Moody's analysts wrote in a March 21 report.
But near-term factors, such as the lack of North American midstream infrastructure, will continue to dampen U.S. gas prices until more pipelines and LNG facilities come online to relieve oversupplied regions, Moody's analysts said. "As these constraints disappear, natural gas prices should rise gradually toward oil equivalent prices over the long term."
Total U.S. gas demand for the week ended March 20 slightly fell to 91.3 Bcf/d from 93.1 Bcf/d in the same period of 2018, the U.S. Energy Information Administration said March 21. In line with expectations that the burgeoning LNG segment of the industry could ultimately put upward pressure on gas prices, LNG pipeline receipts were up to 5.5 Bcf/d, compared with 3.1 Bcf/d in the year-ago period.
Offsetting the uptick in demand, total U.S. gas supply was up materially in the week ended March 20 to 93.5 Bcf/d, compared with 85.7 Bcf/d during that week in 2018.
Nevertheless, low demand nationwide did not prevent major gas price spikes at Southern California Gas Co.'s SoCalGas Citygate. Colder-than-normal weather, along with continued pipeline and storage restrictions, have pushed SoCalGas Citygate gas prices to record highs this winter, the EIA said in a March 19 note.
"Average spot natural gas prices at the Southern California Gas Citygate are on record pace so far this winter, averaging $7.23/MMBtu" since Nov. 1, 2018, according to the EIA. "The spot price of natural gas at the SoCalGas Citygate has averaged about 76% higher than the average price at this trading hub for the same period during the winter of 2017-18." Spot prices peaked at $21.50 on Feb. 21 and were routinely above $10/MMBtu for much of February, according to S&P Global Market Intelligence data.