Potential Oil Glut! Raymond James Analyst's Contrarian Forecast

The Energy Report: Why are you expecting an oil glut in 2014?

Andrew Coleman: Because of the evolution of North American shale oil plays, we are on track to add about 3 million barrels (3 MMbbl) of new supply over the next five years. Yet we know oil demand has been falling across the developed nations and is still weak coming out of the global financial crisis. Those developments point toward a glut.

TER: Saudi Arabia surprised you last year by cutting production when oil was more than $110 per barrel ($110/bbl). Why would Saudi or other suppliers not do that again?

AC: What hurt production outside the U.S. last year and helped keep the demand side a little more in balance was that Saudi cut 800,000 barrels a day (800 Mbbl/d) in Q4/12, sanctions in Iran reduced exports by about 800 Mbbl/d as well, conflict in Sudan took 300 Mbbl/d offline and the North Sea average was lower by about 130 Mbbl/d. These reductions kept last year's supply more balanced than we thought it would be. Going forward, Saudi's ability or willingness to cut is certainly going to be tested, because by our model the country may need to cut 1.5 million barrels a day (1.5 MMbbl/d), about double what it cut last year. It would have to do that for a longer period of time, given the amount of excess storage that could show up on the global markets.

TER: But, as you just pointed out, Saudi Arabia's cut came in the context of actions by other players. The other players are going to be as unpredictable as they were last year, aren't they? Continue reading "Potential Oil Glut! Raymond James Analyst's Contrarian Forecast"

Natural Gas Has Sex Appeal: Andrew Coleman

The Energy Report: In your last interview, you talked about raising price targets on energy sectors and individual stocks with promising reserves and production growth. Is that still your view, or have circumstances changed?

Andrew Coleman: What we're more worried about at this point is that the U.S. economy has been slower to recover than we expected. Meanwhile, the situation in Europe is getting worse and China's growth is slowing. To help us evaluate oil and gas markets in this context, our team here at Raymond James put together a bottom-up supply model looking at the oil shales, which was a follow-up to work the team had done on gas shales a couple of years earlier.

"The forward curve on gas is getting better."

The gas outlook has remained cautious, although not nearly as bearish as it was a couple of years ago. We have, however, become much more nervous on the short-term outlook for oil. We have a $65 per barrel (bbl) forecast for West Texas Intermediate (WTI) and an $80/bbl forecast for Brent for 2013. The forward curve on gas is getting better, and certainly 2013 gas is over $4 per thousand cubic feet (mcf) right now. Oil is our big concern and back in June we downgraded virtually every name that we follow in the EP space to the point where we now have no strong buys in our coverage group. Continue reading "Natural Gas Has Sex Appeal: Andrew Coleman"