Tudor Pickering: Supply and Demand Will Fix Industry, Despite OPEC

by Deon Daugherty, Senior Editor

The Organization of Petroleum Exporting Countries (OPEC) – it’s becoming a sort of gift that just keeps on giving to journalists during the doldrums of holiday season reporting.

After OPEC released it’s “vaguely worded communique” as described by Wood Mackenzie, anyone watching the news was left in a state of confusion.

The final-ish analysis? Essentially, the Saudi-controlled cartel said they weren’t going to doing anything to production quotas, but it had grown to 31.5 million barrels of oil per day (MMbopd). And, and there was nothing anybody was going to do about it, at least for the time being.

But leave it to the folks at Tudor Pickering Holt & Co. to astutely quarterback it for us Monday morning in their note to investors.

“OPEC production is unchanged and the specter of Iran’s post-sanctions production increase in ’16 remains. OPEC’s self-imposed confusion surrounding quotas/no-quotas was red meat for the lower-for-longer crowd,” TPH said. “Make no mistake, the industry is not just impaired under lower-for-longer … it is fundamentally broken.”

As such, it will be up to the fundamentals – supply and demand – to fix the oil market. U.S. supply is declining and activity is deteriorating, high-dollar projects and capital spending budget is being sliced and diced, and yet, demand remains strong, TPH said.

And while crude oil prices may remain weak through the end of the year, TPH forecasts a silver lining.

“Global supply and demand will start to noticeably improve by 2Q16 and we remain convicted with our $80 [per barrel] 2H16 oil price forecast,” they said.


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