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Raymond James Energy Stat of the Week
by J. Marshall Adkins

Energy Stat: Will Our Above-Consensus Permian Oil Growth Forecast Cause Differentials to Blow Out?
May 22, 2017

While energy investor eyes remain fixated on the OPEC meeting this week (May 25th), we're focusing this week's ''Stat'' on the oil market's next biggest concern, which is the fear of runaway U.S. oil production and its impact on price.

The ''surge'' in U.S. oil production growth is centered mainly in the Permian and has many energy pundits convinced that oil prices are range-bound (at best). While we are in complete agreement that U.S. and Permian oil supplies will surge over the next eighteen months, we've pointedly disagreed with the conclusion that oil prices will remain flat or down over the next year. In fact, we have one of the most (if not the most) aggressive 2017/18 Permian production growth forecasts on the street but we don't think it will be sufficient to oversupply the oil market in the near future. In today's Stat, we'll take a dive into the largest driver of U.S. oil supply growth - the prolific Permian Basin - to discuss: (1) the outlook for oil production (hint: it's fast), (2) the ability of Permian pipe infrastructure to keep pace with production growth, and (3) what our updated Permian forecasts mean for Permian price differentials (both timing and magnitude).

This is a summary of a much more detailed commentary. Please contact your financial advisor for the full report.

There is no assurance any of the trends mentioned will continue in the future. Past performance is not indicative of future results. Investing involves risk and investors may incur a profit or a loss. Specific sector investing can be subject to different and greater risks than more diversified investments. Investing in commodities is generally considered speculative because of the significant potential for investment loss. Commodities are volatile investments and should only form a small part of a diversified portfolio. Markets for commodities are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising.

The Dow Jones Industrial Average is an unmanaged index of 30 widely held stocks. The S&P 500 is an unmanaged index of 500 widely held stocks. The Oil Services Index (OSX) comprises 15 of the largest oil service companies. The S&P SuperComposite Oil and Gas Exploration & Production Index (S&P Oil and Gas E&P) consists of all oil and gas exploration and production stocks included in the S&P SuperComposite 1500 Index. Investors cannot invest directly in an index. Additional information is available upon request.