Oil & Gas Price Forecasts for 2018
Posted: Tue Jan 02, 2018 10:26 am
Note sent by Raymond James on 1/2/2018
While 2017 oil prices averaged well below our original year-ago forecast of $70/Bbl, WTI did exit the year well above consensus expectations, hitting its highest levels (just over $60) since mid-2015. Brent exited the year even higher, in the mid-$60s, reflecting the wider WTI-Brent spread. For most of the past year, oil fundamentals (i.e., oil inventory reductions) were actually more bullish than we had anticipated a year ago. Natural gas averaged at a three-year high, although below our originally forecasted $3.25/Mcf. While we feel tempted to take a proverbial victory lap about the recent commodity backdrop, we also have to acknowledge that the year was mostly disappointing for energy stocks (which, to be blunt, is what ultimately counts).
Here is what our crystal ball suggests for 2018.
First, we think oil still has room to run, with upside of around $10/Bbl (or 15%) to current 2018 futures strip pricing.
Second, we expect a down year in gas, and thus our traditional preference for oil-centric stocks remains intact.
Third, we think energy stocks will generally outperform oil, in contrast to last year's frustrating multiple compression.
WTI averages $65 in 2017 (or about $10 above the strip).
U.S. gas market set for a down year in 2018, and not getting any better thereafter.
Energy stocks mostly lagged oil prices in 2017, but we think that will reverse in 2018.
While 2017 oil prices averaged well below our original year-ago forecast of $70/Bbl, WTI did exit the year well above consensus expectations, hitting its highest levels (just over $60) since mid-2015. Brent exited the year even higher, in the mid-$60s, reflecting the wider WTI-Brent spread. For most of the past year, oil fundamentals (i.e., oil inventory reductions) were actually more bullish than we had anticipated a year ago. Natural gas averaged at a three-year high, although below our originally forecasted $3.25/Mcf. While we feel tempted to take a proverbial victory lap about the recent commodity backdrop, we also have to acknowledge that the year was mostly disappointing for energy stocks (which, to be blunt, is what ultimately counts).
Here is what our crystal ball suggests for 2018.
First, we think oil still has room to run, with upside of around $10/Bbl (or 15%) to current 2018 futures strip pricing.
Second, we expect a down year in gas, and thus our traditional preference for oil-centric stocks remains intact.
Third, we think energy stocks will generally outperform oil, in contrast to last year's frustrating multiple compression.
WTI averages $65 in 2017 (or about $10 above the strip).
U.S. gas market set for a down year in 2018, and not getting any better thereafter.
Energy stocks mostly lagged oil prices in 2017, but we think that will reverse in 2018.