If there’s one industry that’s nearly impossible to accurately predict, it’s the oil and gas industry. Supply, demand, technology, costs, and a number of other variables have a tendency to change without much rhyme or reason, which makes it challenging to develop definitive predictions for 2016 and beyond. However, as we transition from 2015 into 2016, this lack of clarity doesn’t keep a number of industry resources from making predictions and suggestions as to what will happen.
Major Company Cutting Production
As we prepare for 2016, perhaps the biggest piece of news is that Gulfport Energy Corporation, one of the country’s largest oil and gas companies, is voluntarily cutting back on production through the beginning of the year.
“Our hope is that our peers, by choice rather than necessity, will do the same,” said Gulfport CEO Michael G. Moore. It’s his belief that reducing production is the only sensible thing to do when you look at industry prices. Gulfport began scaling back production levels at the beginning of November – by approximately 100 million cubic feet per day- and is hoping that a reduced supply will increase consumer demand and counteract the falling prices.
Low Prices at the Pump
Speaking of prices, it looks like consumers will continue to enjoy low prices at the pump in the beginning of 2016. “Oil market sentiment is currently as ugly as it’s been since January,” a recent report from Raymond James reads. “The industry is set for a second straight year of painful austerity.” Raymond James forecasts next year’s U.S. oil price at $55 per barrel. That’s down $10 from the $65 mark that was previously set a few months prior.
While it’s foolish to predict specific prices at the pump, it’s clear that prices will remain low for at least the first few weeks or months of 2016. And unless other companies follow the lead of Gulfport, supply could continue to drastically exceed demand throughout the year. That’s good news for drivers and bad news for oil companies.
A Global Issue
While prices at U.S. gas pumps may be low, these friendly prices are rooted in global catastrophes. Throughout the Middle East, countries like Iraq, Iran, and Saudi Arabia have all boosted oil production. At the same time, the financial crashes in China and Greece have driven demand down to record low levels. The result is a massive gap between the amount of gas consumers are able to buy at the pump and the number of gallons of oil these big companies are producing.
While some companies aren’t yet willing to cut back on production, virtually all oil and gas organizations are halting plans for large projects. “Companies continue to re-phase, defer and cancel high cost projects as prospects dim for price recovery in 2016,” a recent report from Moody’s Investors Service reads. “Despite a roster of large new projects, sustained spending cuts will hurt longer-term production growth.”
Promise for 2017
While we haven’t even completed 2015, industry experts are already eying 2017. This is the year that they see the industry rebounding. Moody’s Investors Service predicts $60 per barrel for U.S. oil and $65 per barrel for oil abroad in 2017. This appears to be the only good news in a bleak forecast that’s expected to shroud much of 2016.
As we prepare to enter 2016, sentiments are divided regarding the state of the oil and gas industry. U.S. consumers love seeing low prices at the pumps, while production companies are frustrated by the surplus supply in the marketplace. While it’s impossible to predict the future of such a volatile industry, it appears that consumers will be happier than the oil and gas companies in the new year.