Summary of the Simmons and Company Oil and Gas Macro Outlook
Simmons estimates crude oil prices to average $24 WTI for 2000 and $21 WTI for 2001, with 1Q00 at $28, 2Q00 at $24, 3Q00 at $23 and 4Q00 at $21. For 2001, they see 1Q01 at $22, 2Q01 at $20, 3Q01 at $21 and 4Q01 stable at $21. Their thesis, relying on inventory-price dependence, is as follows.
Crude oil stocks are at long-term lows, with OECD inventories approaching the 2,300 mmbbl range and US inventories well below 640 mmbbl. US motor gasoline as well as distillates inventories are at record lows, just below 200 and 100 mmbl, respectively. Domestic demand, however, continues to grow, with robust mogas demand at around 8.5 million barrels per day trending upwards. A high demand for distillates at 4.2 millon barrels per day is surprising considering the warmer-than-expected winter. DOE data displays continued total inventory outperformance throughout 1999, peaking at withdrawals of 51.8 million barrels in 4Q99. Opec compliance has remained high. Low crack spreads indicate refinery discipline.
Simmons forecasts an increase of OPEC crude production at or around 1.0 mmbl/d after the March 27 meeting, as well as another hike of 1.5 mmbl/d at their second semi-annual in 3Q00. Their supply and demand forecast for 2000 predicts an average supply shortage of 1.2 mmbl/d, estimating supply and demand at 75.3 and 76.5 mmbl/d respectively. Supply will exceed demand most widely in 1Q00 with 3.6 mmbl/d, while easing to a surplus of 0.3 mmbl/d in 2Q00. Simmons sees 3Q00 undersupply at 1.0 mmbl/d and 4Q00 at 1.2 mmbl/d. The 2001 estimates depict OPEC production remaining stable at 29 mmbl/d, factoring in an additional 0.1 mmbl/d for possible problems with compliance. 2001 is forecast to bring supply and demand back into balance at an average of 77.7 mmbl/d over the year, though indicating cyclical supply shortages in 1Q01 and 3Q01. While 1999 as well as 2000 and 2001 estimates reflect modest demand growth of -0.3%, 1.3% and 1.5%, respectively, high crude prices are being supported by sluggish non-OPEC supply growth of an estimated 0.6% in 2000.
Another restricting factor discussed was probable OPEC capacity constraints, with only Saudi Aramco and Kuwait having any notable spare capacity to put online during 2000. OPEC Middle East and Latin American rig count remains very low at just under 200 active drilling rigs, a range that has not been touched since late 1990, supporting the capacity constraint theory. The total OPEC crude output increase of 2.5 mmbl/d is therefore seen as realistic, with not too much leeway on the upside for 2001.
US oil directed rig count has not yet rebounded, but is expected to do so throughout 2000, accounting for some of the...