2022 Oil and Gas Outlook
March 7, 2022 - We asked HighGround Oil and Gas Manager Will Francis to provide context for what is happening in the oil and gas industry right now as well as what we can expect in the months to come.
Oil price - The WTI (West Texas Intermediate) price was $76 on January 3rd of this year. The price as of March 7th was $120. This upward trend will continue as long as there is geopolitical unrest.
- GDP has been rising, leading to increased consumption.
- The decline in the Omicron surge is influencing market prices upward.
- Geopolitical pressure has reentered the picture and will influence oil prices in 2022. The Ukraine crisis and possible sanctions on Russian oil could cause a big push upward on oil price.
Gas Price - Regular gasoline averaged $3.31 in January, while the price exceeded $4.00 on March 6th for the first time since 2008! It is expected to rise as long as geopolitical events impact the industry during the course of this year.
Supply is expected to increase in the middle of the year. Most major companies have added a 5% to 10% production increase in their forecasts, and OPEC+ continues to gradually increase output.
- There is talk about reduced sanctions on Iran, which would be a boost to the worldwide supply.
- Oil companies are increasing their drilling budgets and expect a net increase in oil and gas production.
- The current administration is making new drilling difficult by canceling pipelines on the east coast, causing New Jersey, New York, and other states to import natural gas. However, there is a tremendous amount of gas available by pipeline from West Virginia and Pennsylvania.
- On February 20th, the Department of the Interior halted all new drilling on federal lands until a legal case seeking to quantify “the social costs of carbon” works itself out in court. The legal battle pits the potential economic impact of greenhouse gas emissions against the benefit of oil and gas production.
MERGERS & ACQUISITIONS (M&A)
Mergers and Acquisitions were down in the fourth quarter of 2021. There was a large swing in price, making it difficult to agree on a sales price and impacting valuations. M&A deals completed in 2021 were 179, compared to 400 in 2019 before COVID and price instability. 2022 should see more M&A activity, as M&As are the best way for companies to add properties to their drilling inventory.
Worldwide supply is not rising enough to result in reduced prices. Shifting to renewables will take time. In the long run, there will need to be an all-inclusive solution.
For more information or to learn how HighGround can manage your oil and gas assets, contact Will at firstname.lastname@example.org or 214.978.3333.