Department of Energy forecast for 2021

When I predicted 2020 a year ago, the world was close to a pandemic that would take over the oil markets. In the process, it cost two of what I was predicting in the energy sector, but three others ended up being right.

The Covid-19 pandemic last year was a black swan incident that caused an unprecedented fall across the energy sector. The evolution of the pandemic this year is the variant that most affects the energy sector. Yes, even bigger are any policies that our new President will implement.

The energy sector is already making a quick start in the equities markets this year, as the market expects to return to normal. But if those expectations go up and it takes longer than expected for the disease to come under total control this year, there is a risk of a bad reaction.

Against that background, below is my forecast for some of the key energy trends I anticipate this year. As I usually point out, the debate behind prediction is more important than the prediction itself. That is why I provide broad background and reasoning behind the prediction.

I also make predictions that are specific and measurable. At the end of the year, there are certain measures that indicate whether a prediction was right or wrong.

1. The average price of WTI in 2021 will be between $ 50 / bbl and $ 55 / bbl.

Oil is still the most important commodity in the world, so I always try to be guided by the prediction of the direction of oil prices. I usually make this prediction by looking at supply and demand trends, as well as inventory levels.

A year ago, I thought my prediction was aggressive, but strong. I felt like oil prices were strong all year round. But this was one prediction made by the pandemic within a month of its onset.

As we do not know how long it will take to control the pandemic, there is a lot of uncertainty about the management of oil prices. Oil prices rallied in the fourth quarter, and are now close to where they were a year ago. That expects a strong recovery. However, OPEC is sitting on the additional production capacity that they will bring online if demand starts to rise. That will bring some headlines for oil prices.

In 2020, the average daily price for West Texas Intermediate (WTI) was $ 39.16 per barrel (bbl). That was nearly $ 20 / bbl lower than in 2019. This year, I think the average WTI is almost certainly higher than it did last year, but I think it is doubtful that he is averaging as much as he did in 2019.

WTI spot price is currently $ 53.00 / bbl. Demand continues to fall below a year ago, which puts prices at a slower risk. OPEC is likely to be a captain on the top side. Therefore, I estimate that the average annual price for WTI in 2021 will be between $ 50 / bbl and $ 55 / bbl.

However, I will add a couple. If one of the new versions of Covid-19 is not covered by the available vaccines – or if it takes longer than expected to get the pandemic, oil prices will break back below $ 50. To quickly control the pandemic, we will see a strong recovery in oil prices that could break above $ 55. Demand in the U.S. is weaker than it was a year ago, but it is not. that is true for all countries. OPEC is still poised to ramp up production, but it is possible that prices could get ahead of OPEC ‘s action.

2. Total U.S. oil production will decline for the second straight year.

According to the Energy Information Administration (EIA), U.S. oil production fell in the second half of 2020. Currently, year-over-year production is 2.0 million BPD lower than it was a year ago. The number of rigs drilling for oil has gone up in recent weeks, but is still down 57% from a year ago.

President Biden has already suspended oil and gas drilling and drilling licenses on U.S. land and waters for 60 days. It has also suspended the license for the Keystone XL pipeline, indicating that this administration will not be friendly to the oil industry.

All of this indicates that U.S. oil production will continue the recession that began in late 2020. I expect the recession to slow, and possibly stabilize, but bring it back strongly US oil production to see growth in 2021.

3. The average price of natural gas will be at least 25% higher than it was in 2020.

Last year I predicted that average natural gas prices would be the lowest in more than 20 years. That certainly happened. The average Henry Hub natural gas spot price for 2020 was $ 2.03 / MMBtu, which was the lowest annual average since the EIA began monitoring these data in 1997.

But falling oil production means a decline in natural gas supply associated with that oil production. That will tighten supply, which was a key factor in recovering natural gas prices at the end of 2020.

I anticipate that recovery will continue into 2021. I expect natural gas prices to average above $ 2.50 / MMBtu in 2021, which would represent a ~ 25% increase or more over 2020.

4. U.S. oil imports will increase in 2021.

U.S. oil imports have declined steadily since 2005, when they averaged 10.1 million BPD. There was a brief reversal in 2016 and 2017 – a result of lower prices that adversely affected U.S. oil production. But by the end of 2020, crude oil imports had fallen to 6.0 million BPD.

I expect this trend to return in 2021. A combination of last year’s price fall and new rules from the Biden Administration are likely to drive U.S. oil production lower this year, but oil demand is sharp. -full going to recover. That means more imports will be asked to fill the gap.

5. ConocoPhillips

COP
total yield will be at least 30%.

I usually like to close with a preview of ConocoPhillips, the world’s largest publicly traded oil and gas producer. Last year I predicted it would return 20% on the year. The company was in a good position a year before the pandemic caused oil demand. So instead, ConocoPhillips closed the year down nearly 40%.

As I write this, the price of WTI year over year is 8.7% lower. But shares of ConocoPhillips are still 32% lower than they were a year ago. The company is in a position to deal with shares and capital expenditures by WTI at $ 40 / bbl. At> $ 50 / bbl, the company should do well.

Preventing another fall in oil prices this year, I expect the market to recognize the value proposition eventually. As I said a year ago, even if oil prices fall I expect ConocoPhillips to weather the storm. They have been around for a long time, and are one of the best regulated oil companies on the planet. The company is also very exposed to natural gas, so higher prices will result in more icing on the cake.

There is my 2021 forecast in your energy sector. As usual, I rate them at the end of the year.