Summary of the Raymond James Oil Price Forecast - July 31

[dan_s]

At our Houston luncheon on July 31 Muhammed Ghulam, a Senior Associate on the Raymond James Energy Sector Research Team, presented RJ's oil price forecast and the details behind it. When I returned to my desk after the luncheon, I confirmed that the firm is predicting that Brent oil will move up to more than $100/bbl within twelve month. Obviously, this will be a major "Paradigm Shift" for the Wall Street Gang if it comes to pass.

I don't have approval to send out the slides that Muhammed spoke from, but I sent via emaial Raymond James' most recent oil and gas price forecast that is dated July 22, 2019.

Here are the points from Muhammed's presentation that really jumped out at me.

1. The price of oil is actually up 70% from the beginning of 2016, yet energy sector equities do not reflect the increase; many outstanding upstream companies (like our Sweet 16) are down double digits YTD.

2. As I have been telling you in my weekly podcasts, U.S. oil production growth has stalled; with no sustained growth since March. At the current level of active rigs drilling for oil, we may have seen this year's peak production. If RJ's oil price forecast of $70 WTI in Q4 is correct, we may see a slight surge in well completions heading into year-end.

3. Each year the U.S. adds another layer of high decline rate horizontal oil wells; making it harder and harder to offset annual declines (3,000,000 BOPD in 2020). In 2020 it will take approximately 1,000 rigs drilling for oil just to hold U.S. production flat.

4. DUCs will not save us this time. "Drilled but Uncompleted Well" ("DUCs") inventories are back to normal. New wells be drilled and new wells being completed should stay about the same.

5. This is BIG REASON #1: Unless the U.S. drops the sanctions against Iran and Venezuela, there is zero chance that OPEC+Russia can get production back to where it was in Q4 2018. < Read this again and let it sink in.

6. Global demand growth for oil is RELENTLESS. It has slowed a bit, but still going up over a million barrels per day year-after-year. In 2019, global consumption of oil based liquids will top 101,000,000 barrels per day or 36.9 BILLION BARRELS. < Let that sink in.

7. FEAR of EV's lowering oil demand is way overblown. They still cost too much for average consumers.

8. BIG REASON #2 and why Raymond James sees a big spike in oil prices in Q1 2020: IMO 2020 regulations requiring ships to burn low-sulphur fuels will take 1,500,000 barrels per day off the market.

Conclusion: U.S. and OECD oil inventories are now falling by more than a million barrels per day. By the end of this quarter, they will fall to under 27 days of supply. It will be the lowest level (on days of supply) EVER. The last time OECD oil inventories were this low was in Q2 2008 and the price of oil spiked to more than $140/bbl.

Final Point: None of this assumes a shooting war with Iran. If a few wacko Iranian gunboat captains attack a U.S. warship or sink a tanker in the Strait of Hormuz, we may see triple digit Brent quickly.

All oil cycles come to an end and they ALWAYS over-shoot the mark. Raymond James agrees with my opinion that the Right Price for WTI is $65 to $75, but where oil inventories are heading will take oil prices much higher.