Macquarie’s Brian Bagnell: Forget Peak Oil; Worry About Peak Demand

The Energy Report: Oil prices have made a minor recovery, with West Texas Intermediate (WTI) at about $50/barrel ($50/bbl) and Brent at about $60/bbl. Where are oil prices going in the short term?

Brian Bagnell: That’s a hard question to answer. What we know for certain is that prices will remain volatile throughout H1/15. The numbers bear this out, with the global supply/demand overbalance predicted to come in around 1.5 million barrels per day (1.5 MMbbl/d) in Q1/15 and 1.9 MMbbl/d in Q2/15.

TER: The U.S. oil rig count reached a five-year low earlier this month. How long before U.S. oil production shows a significant decline?

Manitok Energy Inc. is in good shape because of its prudence, and yet is trading very cheaply versus its peers.

BB: Our commodities team thinks the loss of another 150 rigs in the U.S. will bring the growing disparity between supply and demand back into balance. The rig count is being reduced by about 80 rigs per week, so the reduction will take a couple of weeks. Losing any additional rigs could mean we start seeing declines in late 2015.

TER: When U.S. production declines, will we see a price spike?

BB: No. I don’t think we’ll be back to $70/bbl anytime soon. The forward curve for WTI—what we call the strip—suggests we will hit $60–61/bbl by the end of this year. That seems reasonable to me.

TER: Do you believe in peak oil?

BB: No, I don’t. Higher prices tend to spur innovation. We once thought that peak oil existed, but that was before we discovered horizontal drilling and multistage fracturing, etc., and those technologies still have not been applied to shale reservoirs worldwide. Potentially, a lot of untapped resource in the world still can be accessed through newer technology and improved …read more

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