Increased North American Production Will Cap Oil in the $55-$60 Range For 2017: Analysts

Thursday January 5, 2017

Despite recent flamboyant forecasts from optimistic experts that oil may reach the $100 mark in the near future due to the Organization of the Petroleum Exporting Countries' (OPEC) cutback agreement, the more conservative predictions were reinforced Wednesday by Deloitte, which believes $55 will be the norm in 2017.

Andrew Botterill, a partner with Deloitte's resource evaluation and advisory group, said this is because the cost of bringing on more natural gas production in the U.S. and Canada remains "quite cheap," therefore "It's tough to see how we're going to get very high, elevated prices."

However, Botterill is hardly pessimistic in his forecast, even though $55 won't be enough to allow all producers (ie: U.S., shale and players in Canada's oil sands) to recover to the degree they're hoping for: he said, "It's significantly better than what the average was through last year, which is bringing some optimism into the sector."

Botterill added, "And with reductions in operating costs that companies have realized in the last year or two, there are more plays that are going to be economic ... there's a lot of opportunity in the sector now, and there's some optimism in producers, and I think we're going to see a much better 2017 than ... last year."

Slightly more bullish – but again far from the $100 mark – is Jonathan Pain, author of The Pain Report, who told CNBC that "I think oil is capped at $60, because of course $60 will unleash an increase in supply coming out of the U.S.," and that "the price will naturally be capped with an increase in supply."

Pain and Botterill's focus on what North American oil producers will do is particularly salient this week, as at the same time they were expressing their opinions, Jack Gerard, president of the American Petroleum Institute, on Wednesday called for deregulation and increased access for offshore drilling – issues that incoming U.S. president Donald Trump promises to address in the industry's favour when he takes office later this month.

Gerald said in a speech in Washington, "We must break from the recent past [and] re-examine the regulatory onslaught of the last few years that has proposed or imposed some 145 regulations and other executive actions on our industry, and instead work to implement smart energy regulations."

Outgoing president Barack Obama during his final days in office has enacted a flurry of initiatives designed to derail Trump's policy mandates, one being an attempt to put a permanent block on drilling in most of the Arctic waters north of Alaska and on the Atlantic coast from Virginia to Maine.

Gerard argued that opening those offshore areas for oil and gas production could create 800,000 jobs and raise $200-billion in government revenues.

While few doubt Trump's eagerness to advance his pro-business agenda, it's unclear how tough it will be to combat what Gerard refers to as the "small, vocal minority" of environmental activists determined to block fossil fuel energy projects, regardless of their benefits to the economy.

Some of the $100 forecasters think that high level of price will be achieved regardless of the OPEC deal: Tim Pickering, founder of Auspice Capital Advisors, said last month  that 2017 will be a good year for crude prices: "Regardless of OPEC cutting 500,000 or 1 million or 1.5 million barrels and sticking to that, we're generally positive and think we're going to be on a positive trajectory here for some time.

"The supply demand balance is coming back regardless of OPEC."