Oil Price Forecast for the remainder of 2021

[dan_s]

I went back and went through the slides of a presentation that Marshall Atkins, Head of Raymond James Energy Investment Banking Division gave at the DUG Mid-Continent Conference on August 18, 2020. His predictions seem to be coming true.

Marshall's Conclusions: with my comments in blue.
1. The damage done to the U.S. Oil & Gas Industry in 2020 will lead to substantially lower oil supply in 2021. < non-OPEC+ production is down 3 to 4 million barrels per day since the end of 2019.
2. Global oil inventories started falling in June, 2020 and will fall BELOW NORMAL early in 2021.
3. OPEC+ must ramp up production in 2021; to full capacity in 2H 2021.
4. Why? Because OECD oil inventories will fall below 30 days of supply in Q2 2021 and may drop to 25 days of supply unless OPEC+ ramps up production to full capacity. < If OECD inventories drop to 25 days of supply, the price of oil will spike to over $100/bbl.
5. By Mid-2021 the price of oil will need to double from what it was at the time of his presentation (approximately $40/bbl) by Q3 2021. < $80/bbl WTI this summer does now seem possible to me.
6. Oilfield activity will recover slowly in 2H 2020 (which it did) and accelerate higher in 2021. < His forecast was that the U.S. would average 459 active drilling rigs in 2021, which compares to 397 active rigs on 2/12/2021 per Baker Hughes and then ramp up to 800 active rigs in 2022. Note that we need 650 active rigs in the U.S. to stabilize production.

After Marshall's presentation he stressed that the opinions in his presentation were his own and not the "official" Raymond James oil price forecast. On July 6, 2020 the Raymond James official WTI oil price forecast was $40/bbl in 2H 2020 then rising to $42 in Q1 2021, $48 in Q2 2021, $60 in Q3 2021, $70 in Q4 2021. Obviously, in the "real world" the oil traders are now coming into agreement with Marshall's personal opinion.

I will be listening carefully to the 2021 guidance from our Sweet 16 companies. I DO NOT expect any of them to announce a significant increase in the drilling programs despite the recent rise in oil & gas prices. Instead they will promising that they will focus on free cash flow generation this year to pay down debt, raise dividends and fund stock repurchase programs.