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US E&Ps are set to register their strongest free
cash flow results in years, thanks to surging oil and gas
prices and restrained spending. We continue to expect these
producers to exert spending restraint through the end of the year
as they focus on repairing balance sheets and delivering robust
cash returns to investors. By 2022, we believe the pathway to
volumetric growth will emerge, as WTI prices averaging in the $70s
should allow producers to deliver both meaningful returns of
capital to shareholders and boost spending to support volume
growth. Base decline rates have also materially decelerated given
the decline in new well additions in 2020-21 compared with previous
years; this will make growth easier next year. We are projecting US
crude oil production to increase by 700,000 b/d in both 2022 and
2023. We have left our 2022 US supply outlook unchanged (+700 Kbd)
despite our upward revision to WTI prices of roughly $15/bbl in
fourth quarter 2021 and $11/bbl in 2022.
Cushing inventories likely headed toward tank
bottoms. Backwardation in the WTI forward curve has
reached the highest level since 2014, both reflecting a tightening
crude balance in the US Midcontinent and reducing incentive to
store barrels at the Cushing hub. Price differentials will shift to
eventually replenish storage levels: we expect Cushing prices to
strengthen relative to Midland and Houston to attract barrels from
the Permian Basin and reduce outflows to the Gulf Coast, where
inventories are fuller.
Light, sweet crude supply is tightening in the US
Midwest and Midcontinent. PADD 2 and PADD 4 crude oil
production is averaging about 400,000 b/d lower this year than in
2020, reducing light, sweet supply to regional refineries.
Meanwhile demand for crude in the region has been robust, with PADD
2 refinery throughput at times exceeding 2019 (prepandemic) levels.
As a result, inventories are not just low at Cushing—at various
hubs throughout PADD 2, they are at levels not seen since 2015.
Posted 05 November 2021 by Aaron Brady, Vice President, Energy
Recent policy announcements and current ambitious mechanisms are beginning to shape regional strategies to deploy a… https://t.co/Xo6dgrAdto
Dec 06
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