 Global oil prices are way down and despite a gradual rebound in recent weeks,
most U.S. producers have, at best, resigned themselves to prices in the $50-$60
a barrel range or are, at worst, preparing for another swoon.
Some have even warned of prices touching $20 a barrel.
But energy analyst David Pursell is confident prices are going back up — all the
way to $85 a barrel “by the middle of next year” and staying in that
neighborhood for a few years.
“I love being a contrarian,” Pursell told Watchdog.org after his prediction
created a buzz at the Platts Rockies Oil and Gas Conference last week. “It’s
more fun and more interesting, but we’re not contrarian to be contrarian. I’m
actually surprised at how lonely we are in our call.”
Not only does Pursell think he’s right, but he told attendees at the conference
it’s one of the easiest calls he’s had to make in nearly 30 years in the
business.
“This market gets tight really fast,” said Pursell, who is managing director and
head of securities for the energy investment and banking firm Tudor Pickering
Holt & Co.
However, Pursell said there will be some short-term pain before the long-term
gain, unveiling a chart showing U.S. oil production will slow considerably later
this year and take a dive in 2016:
“All the signs point to production falling,” Pursell said.
But then, Pursell said, the market will bounce back — and so will global oil
demand.
“I think $85 (a barrel) next year is not crazy,” Pursell told the audience in
Denver.
That flies in the face of the conventional forecasts of many analysts, who point
to stagnating demand in China — one of the world’s biggest oil users — and
Europe.
But Pursell disagrees.
“India’s going gangbusters, China’s okay,” Pursell said after delivering his
presentation. “In the U.S., think about 3 percent growth on almost 20 million
barrels a day. That’s a lot of growth.”
The economic and political uncertainty in oil countries such as Venezuela and
Nigeria — who have been hammered by the drop in prices — adds another factor for
higher oil prices, Pursell said.
Like every analyst, though, Pursell’s prediction comes with some caveats —
namely, that the price will be volatile — but he forecasts higher prices for an
extended period.
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 “Think of a $65-$100 (a barrel) range through the end of the
decade,” Pursell said. “As you get closer to $100 what you worry
about is oversupply in the market and you get back to where we just
came from, which is lots of growth. We don’t need lots of growth, we
just need some growth and we think $85 is the right price to draw
that.”
Higher oil prices would mean good news for U.S. producers, who
have taken it on the chin since the Organization of Petroleum
Exporting Countries decided last November not to cut production,
which sent oil prices into a tumble.
That’s resulted in U.S. producers slashing rig counts by about half,
laying off workers and leaving some smaller oil and gas companies
vulnerable to bankruptcy or getting swallowed up by competitors with
deeper pockets.
But if Pursell’s prediction comes true, it would offer the industry
some much-needed financial breathing room.
Oil prices were as high as $107 a barrel last June, but the price of
Brent crude — the internationally recognized price — dropped into
the low 50s in January.
On Friday, Brent was selling at $66.19 a barrel and West Texas
Intermediate crude — the accepted price in the United States — was
at $59.26.
But oil at $85 a barrel would make motorists pay more at the pump.
“What it means for people you’re talking to is that gasoline prices
are going up,” Pursell said. “Are we going to see $4 (a gallon)
again? Probably not, but you’ll be well over $3, probably mid-3s at
$85 (a barrel) so don’t rush out and buy the SUV just yet. Low
prices are great for the economy because it means the average guy
has more cash, you’re eating out more, you’re spending more, you’ve
got more disposable income. But it will drive more jobs in the
energy industry for sure if prices go up, so there is a little bit
of an offset there.”
Most analysts have been much more bearish about oil prices.
“We see prices at around $60 (a barrel) for the foreseeable future,”
Nicole Leonard, project consultant at Bentek Energy, said at the
Platts meeting.
But Pursell stands by his prediction.
“This is the second-easiest call I’ve had to make,” Pursell told the
audience in Denver. “The first-easiest was that natural gas last
year would go lower.”
Pursell was right about that, as natural gas prices in the United
States went from $6 per mcf (volume of 1,000 cubic feet) in the
winter of 2013-2014 to around $2 today.
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