RBC Capital's Oil Price Forecast as of Oct 6
Posted: Fri Oct 06, 2023 11:25 am
Considering the big dip in oil prices this week, you might find this interesting.
RBC Capital, with a world class energy sector team, has increased their oil price forecast by $5.10 to $86.45/bbl for WTI.
October 6, 2023
Global Energy Research Commodity Price Update
Tailwinds Move into Force
Our global energy commodity price update follows a recent oil price surge partly fueled by Saudi Arabia’s
extended unilateral 1 million bbl/d production cut through the remainder of the year. Positioning wise, we
continue to favor energy companies with cash flow leverage towards oil weighted upstream segments.
From where we sit, the model of capital discipline, balance sheet deleveraging via absolute debt reduction
and shareholder returns (with an accent on share buybacks) will continue to hold into 2024, with
increasing payouts on the horizon as companies achieve their net debt targets. Our updated WTI/Brent
outlook for 2023 and 2024 aligns with Mike Tran’s Oil Strategy: Raising The Floor. This report also
launches our 2025 Equity Research price assumptions (based upon a Brent placeholder of $81.25).
RBC's updated price deck for 2024:
> Brent $89.95/bbl + 6%
> WTI $86.45/bbl + 6%
> HH ngas $3.50 unchanged
North American Natural Gas. Our Henry Hub outlook increases to $2.60/mmBtu in 2023 and is
unchanged in 2024 at $3.50/mmBtu, driven largely by the impact of higher power demand on storage
balances. Canadian AECO prices are now reflected at C$2.84/mcf in 2023 and C$3.28/mcf in 2024. Our
long-term Henry Hub forecast is unchanged at $3.75/mmBtu, as we anticipate sustainable supply
demand balances driven by domestic demand and LNG exports.
European Natural Gas. As the continent continues to be structurally short on gas, we see European gas
prices remaining susceptible to shocks, particularly into winter. Based on our latest expectations of
supply-demand trends, our NBP forecast moves to $13.10/mmBtu in 2023 and $15.75/mmBtu in 2024,
remaining above historical levels. With sizeable LNG capacity coming online globally in the latter half of
the decade, we lower our long-term forecast to $10/mmBtu (vs. $12/mmBtu previously).
Global LNG. Japanese Korea Marker (JKM) spot LNG prices have remained rangebound this summer
below $15/mmBtu as supply disruptions have been somewhat offset by recovering, but still tepid, Asian
demand. Price risk into winter, however, remains skewed to the upside and would largely be a factor of
weather patterns in both Asia and Europe.
Western Canadian Select to WTI.
Our updated WCS-WTI outlook sits at $17.75/bbl in 2023, narrowing further to $14.05/bbl in
2024 with the 590,000 bbl/d Trans Mountain Pipeline Expansion (TMX) slated to move into service
following recent construction delays. We estimate that TMX will lead to excess export pipeline capacity
in western Canada of 200,000-300,000 bbl/d once it is in service.
NGL Pricing. No major changes in our composite price outlook as we moderate the overall relative value
to crude in line with recent trading ranges, and as propane and butane inventory levels continue to build
above the five-year averages.
RBC Capital, with a world class energy sector team, has increased their oil price forecast by $5.10 to $86.45/bbl for WTI.
October 6, 2023
Global Energy Research Commodity Price Update
Tailwinds Move into Force
Our global energy commodity price update follows a recent oil price surge partly fueled by Saudi Arabia’s
extended unilateral 1 million bbl/d production cut through the remainder of the year. Positioning wise, we
continue to favor energy companies with cash flow leverage towards oil weighted upstream segments.
From where we sit, the model of capital discipline, balance sheet deleveraging via absolute debt reduction
and shareholder returns (with an accent on share buybacks) will continue to hold into 2024, with
increasing payouts on the horizon as companies achieve their net debt targets. Our updated WTI/Brent
outlook for 2023 and 2024 aligns with Mike Tran’s Oil Strategy: Raising The Floor. This report also
launches our 2025 Equity Research price assumptions (based upon a Brent placeholder of $81.25).
RBC's updated price deck for 2024:
> Brent $89.95/bbl + 6%
> WTI $86.45/bbl + 6%
> HH ngas $3.50 unchanged
North American Natural Gas. Our Henry Hub outlook increases to $2.60/mmBtu in 2023 and is
unchanged in 2024 at $3.50/mmBtu, driven largely by the impact of higher power demand on storage
balances. Canadian AECO prices are now reflected at C$2.84/mcf in 2023 and C$3.28/mcf in 2024. Our
long-term Henry Hub forecast is unchanged at $3.75/mmBtu, as we anticipate sustainable supply
demand balances driven by domestic demand and LNG exports.
European Natural Gas. As the continent continues to be structurally short on gas, we see European gas
prices remaining susceptible to shocks, particularly into winter. Based on our latest expectations of
supply-demand trends, our NBP forecast moves to $13.10/mmBtu in 2023 and $15.75/mmBtu in 2024,
remaining above historical levels. With sizeable LNG capacity coming online globally in the latter half of
the decade, we lower our long-term forecast to $10/mmBtu (vs. $12/mmBtu previously).
Global LNG. Japanese Korea Marker (JKM) spot LNG prices have remained rangebound this summer
below $15/mmBtu as supply disruptions have been somewhat offset by recovering, but still tepid, Asian
demand. Price risk into winter, however, remains skewed to the upside and would largely be a factor of
weather patterns in both Asia and Europe.
Western Canadian Select to WTI.
Our updated WCS-WTI outlook sits at $17.75/bbl in 2023, narrowing further to $14.05/bbl in
2024 with the 590,000 bbl/d Trans Mountain Pipeline Expansion (TMX) slated to move into service
following recent construction delays. We estimate that TMX will lead to excess export pipeline capacity
in western Canada of 200,000-300,000 bbl/d once it is in service.
NGL Pricing. No major changes in our composite price outlook as we moderate the overall relative value
to crude in line with recent trading ranges, and as propane and butane inventory levels continue to build
above the five-year averages.