Earnings season has begun, which should provide a guideline for how US oil and gas production will fare in the current low price environment. Producers continue to shore up finances through divestitures and dividend cuts, among other things. Here, the energy market outlook by Barclays, that suggests to pay attention on supply levels.
Oil market outlook
In the opinion of Barclays, productivity should continue to improve in most basins and costs are expected to decline further, providing producers with additional cash flow to continue operating and bring new wells online. But headwinds are mounting for US production as hedges roll off, credit redeterminations near, and $30 oil and $2.30 gas begin to take their toll on producer cash flow. In this contest, Barclays forecasts US crude oil production to average 9.0 mb/d in 2016, down 460 kb/d y/y, and US gas production to average 72.4 bcf/d, down 700 mmcf/d y/y.
Natural Gas outlook
Despite a large storage withdrawal this week, storage is still 16% above the five-year average, and forecasts are pointing to February being a warm one. This is bad news for the market as lower commercial and residential demand in February will mean more gas looking for a home. The power sector continues to help clean up the gas oversupply with power burn currently estimated to be running around 3 Bcf/d above levels this time last year.
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